Keen.  D^V;.  Ecott.  TA,   Main  T  i^rat 


MODERN 
FOREIGN  EXCHANGE 


MONETARY    SYSTEMS,    INTRINSIC    EQUIVALENTS 
AND   COMMERCIAL  RATES   OF  EXCHANGE 
OF  ALL  COUNTRIES  AND  THEIR  RELA- 
TION TO  UNITED  STATES  MONEY 


SECOND  EDITION 


BY 
V.  GONZALES 

FORMERLY  FOREIGN  TRADE  AND  BANKING  ADVISOR  OF  THE  NATIONAL 
ASSOCIATION  OF  MANUFACTURERS  OF  THE  UNITED  STATES 


1920 
C.  S.  HAMMOND  &  CO. 

30  CHURCH  STREET,  NEW  YORK 


ox  ^. 


.0 


COPYRIGHT,  1914-1920 
BY  V.  GONZALES 


CONTENTS 

PAGE 

Introduction  to  Second  Edition 5 

Introduction  to  First  Edition 13 

Monetary  Systems 17 

Gold  Standard  Countries 19 

Gold  Exchange  Standard  Countries 21 

Silver  Standard  Countries 25 

Inconvertible  Paper  Money  Countries 26 

Basis  of  Exchange — Intrinsic  Equivalence 28 

Intrinsic  Equivalents  and  Commercial  Rates  of  Exchange       .      .  35 
Instruments   of   Exchange — Cable   Transfers — Notes — Specie — 

Drafts 39 

Exchange,  in  Foreign  Trade 45 

Arbitrage 58 

Table  of  Moneys  in  Actual  Use 61 

Names  of  Some  Coins  Used  at  Times  in  Business 68 

Names  of  Some  Quantities  of  Money  Referred  to  in  Trade     .      .  68 

Value  of  the  Gramme  of  Gold 69 

Coining  Value  of  the  Ounce  of  Fine  Gold 70 

Par  Value  of  the  American  Dollar 70 

Coming  Value  of  the  Ounce  of  Fine  Silver 71 

Time  Distances 71 

Monetary  Units — Intrinsic  Equivalents  ........  78 

Commercial  Rates  of  Exchange 85 

Exchange  Quotations 95 

Colonies  and  Possessions 99 

Intrinsic  Value  of  Subsidiary  Silver  Currency 103 

Exchange,  a  decisive  factor  in  trade 109 

3 


INTRODUCTION  TO  THE  SECOND  EDITION 

The  first  edition  of  this  book  appeared  a  few  months 
before  the  European  War  disturbed  the  entire  financial 
structure  of  the  world. 

Since  then  very  few  technical  changes  have  been  made 
in  the  monetary  systems.  Only  four  countries,  China, 
Colombia,  Salvador,  and  Turkey,  have  put  in  operation 
new  laws  relating  to  money.  In  this  edition  they  are 
mentioned  accordingly. 

During  the  war  several  countries  have  issued  different 
forms  of  subsidiary  money  to  cover  local  needs  of  circula- 
tion. Iron,  zinc,  and  aluminum  coins  have  been  issued  in 
some  of  the  belligerent  and  even  in  some  neutral  coun- 
tries. Also  other  tokens  printed  on  paper  and  cloth.  All 
have  more  or  less  served  their  purpose  for  the  time  being 
and  are  supposed  to  be  redeemed  hi  current  money  as 
soon  as  conditions  become  normal. 

They  have  not  changed  in  the  least  the  technical  condi- 
tions of  money  in  any  country  nor  have  they  had  any 
influence  on  their  foreign  exchanges.  They  will  serve 
more  as  a  good  supply  of  specimens  for  numismatists  and 
collectors  of  curiosities. 

The  great  change,  however,  that  the  world  has  expe- 
rienced is  not  so  much  technical  as  practical.  Gold,  which 
until  the  first  shot  was  fired,  was  the  automatic  regulator 

5 


6  Mcdzn.,  Foreign  Exchange 

of  exchanges,  has  almost  disappeared  from  circulation 
and  being  no  longer  free  to  move  from  one  country  to  the 
other,  has  ceased  to  act  as  the  basis  for  the  adjustment  of 
international  balances.  Nothing  has  been  devised  yet  to 
take  its  place  and  exchanges  between  countries  have  been 
left  entirely  to  actual  supply  and  demand,  except  where 
Government  interference  has  artificially  governed  ad- 
justment hi  the  transfer  of  values. 

Until  a  few  months  ago,  exchange  between  the  United 
States  and  Great  Britain  was  pegged  at  an  arbitrary  rate 
of  roughly  $4.76  per  £1  against  a  mint  par  of  $4.86656 
and  gold  points  of  $4 . 82  and  $4 . 9065.  This  was  done  by 
means  of  permanent  purchase  of  drafts  at  that  price,  the 
necessary  funds  for  so  doing  being  provided  by  loans  made 
to  the  United  Kingdom  by  the  Government  and  the  people 
of  the  United  States.  That  pegging  caused  almost  all  the 
excess  of  London  Exchange  all  over  the  world  to  be 
dumped  into  the  United  States,  creating  adverse  balances 
against  this  country,  which  might  be  termed  "artificial 
balances"  because  trade  balances  were  actually  in  favor 
of  the  United  States,  as  happened  in  Spain,  Scandinavia, 
and  other  countries.  Gold  not  being  allowed  to  move 
except  under  the  most  stringent  regulations,  the  adjust- 
ment of  natural  balances  of  trade  against  the  United 
States  was  exceedingly  cumbersome,  and  caused  the  un- 
pleasant feeling  of  an  American  dollar  at  a  discount  hi 
several  countries.  The  moment  exchange  was  left  free 
again  it  commenced  to  drop  reaching  at  this  writing  about 
$3.75  per  pound  sterling. 


Introduction  to  Second  Edition  7 

No  one  knows  what  the  world  will  be  able  to  do  in  the 
matter  of  either  reestablishing  gold  to  its  former  position 
or  substituting  for  it  some  other  form  of  international 
adjusting  medium  universally  accepted.  Until  then,  ex- 
changes all  over  the  world  will  be  disturbed  with  nothing 
certain  for  the  future  and  subject  only  to  supply  and  de- 
mand. 

• 

The  immense  amount  of  uncovered  paper  money  issued 
and  outstanding  everywhere,  the  enormous  war  debts, 
the  almost  inconceivable  sums  needed  to  restore  the  dam- 
age and  to  set  into  normal  motion  the  wheels  of  production 
and  commerce,  and  the  claim  of  gold  miners  for  a  higher 
price  because  they  cannot  produce  it  for  what  they  obtain, 
are  factors  to  be  considered  in  deciding  what  will  be  done 
to  keep  up  the  parity  of  all  moneys. 

But  whatever  the  world  adopts  as  international  ex- 
change adjuster,  and  however  it  is  put  into  operation,  it  is 
probable  that  the  former  relation  between  the  different 
moneys  will  be  maintained.  In  every  country  its  domestic 
commerce  will  be  regulated  in  its  own  money,  as  it  is  and 
as  it  was.  The  pound  sterling  will  be  made  probably 
theoretically  equivalent  to  $4.86656  and  the  same  will 
apply  to  the  moneys  of  all  other  countries  in  relation  to 
American  currency  and  all  others. 

No  mention  is  made  of  the  money  of  the  new  political 
entities  as  they  are  not  yet  finally  determined.  Czecho- 
slovakia considers  the  adoption  of  a  new  unit  called  the 
"sokol"  to  be  equivalent  to  the  French  franc.  The  coun- 
try, whose  exact  boundaries  have  not  yet  been  fixed,  was 


8  Modem  Foreign  Exchange 

flooded  with  Austrian  paper  money  of  little  actual  value, 
and  the  people  were  used  to  count,  think  and  adjust  their 
prices  in  Austrian  kronen.  It  assumed  as  liability  of  the 
State  the  Austrian  paper  in  circulation,  had  the  notes 
stamped  and  then  exchanged  them  for  its  own  notes 
issued  in  kronen  also. 

In  Poland,  formed  by  the  segregation  of  former  Russian, 
German,  and  Austrian  territories,  there  are  three  different 
moneys  circulating — roubles,  marks  and  kronen.  Some 
tune  will  pass  before  an  actual  uniform  unit  can  be  adopted. 
Of  the  different  factions  of  Russia,  only  the  Ukranians 
have  adopted  a  new  unit,  the  Hryvnia  (pronounced 
crivnia)  equivalent  to  two  roubles.  This  may  be  definite, 
or  not.  It  is  therefore  preferable  to  wait  until  this  matter 
is  finally  settled  before  putting  it  on  record. 

Austria  and  Hungary  were  mentioned  in  the  first 
edition  as  if  one  country.  No  change  has  been  made  in 
the  present  edition  as  up  to  this  moment  no  definite  news 
is  available  as  to  what  the  money  of  the  different  fractions 
of  the  former  dual  monarchy  will  be. 

Jugo  Slavia  or  more  properly  the  "  Kingdom  of  Serbs, 
Croats  and  Slovenes  "  as  it  is  officially  called  and  which 
is  supposed  to  comprise  Serbia,  Montenegro  and  some  ter- 
ritories formerly  under  the  jurisdiction  of  Austria-Hun- 
gary, is  still  divided  in  the  matter  of  currency,  Serbia 
retaining  its  Dinar,  Montenegro  its  perpen  and  Croatia, 
Bosnia  and  Herzegovina  still  using  Austrian  kronen. 

Another  change  of  importance  affecting  exchanges  has 
been  the  advance  in  the  price  of  silver.  When  war  was 


Introduction  to  Second  Edition  9 

declared,  the  average  price  in  New  York  for  the  preceding 
five  years  was  around  55  cents  per  ounce  of  pure  metal. 
This  is  why,  in  the  first  edition  of  this  book,  the  value  of 
money  in  silver  standard  countries  was  figured  on  the  basis 
of  55  cents  the  ounce,  although  it  was  clearly  explained 
that  such  basis  was  constantly  subject  to  fluctuations. 

During  the  first  year  of  the  war  it  dropped  to  an  aver- 
age of  51  7/8  cents  (for  1915).  But  thereafter  silver  ad- 
vanced almost  constantly  until  it  reached  about  $1.15 
at  the  end  of  1917.  The  demand,  especially  for  India  and 
the  Far  East,  was  enormous  and  the  American  Govern- 
ment felt  itself  more  or  less  constrained  to  come  to  the 
rescue  in  filling  the  demand  that  was  creating  chaotic 
conditions  in  the  Far  Eastern  trade  at  a  time  when  its 
products  were  badly  needed  and  could  be  acquired  only 
with  actual  silver,  unobtainable  in  enough  quantity  at  its 
places  of  production.  The  American  Government,  there- 
fore, passed  a  law  authorizing  the  smelting  of  up  to  350 
million  dollars  out  of  the  stock  held  in  the  Treasury,  in 
trust  for  the  redemption  of  silver  certificates,  recalling  an 
equal  amount  of  these.  The  Law  of  April  23,  1918,  au- 
thorized the  sale  of  this  silver  at  not  less  than  one  dollar 
per  ounce  and  directed  the  purchase  of  an  even  amount 
at  the  fixed  price  of  one  dollar  as  and  when  possible,  prac- 
tically fixing  for  some  tune  the  minimum  price  of  silver 
at  $1.00  per  ounce  fine.  In  this  edition  the  value  of  money 
in  silver  standard  countries  has  been  figured  at  this  price, 
which,  of  course,  is  also  subject  to  fluctuation. 

Another  disturbance  caused  by  the  advance  of  the  price 


10  Modern  Foreign  Exchange 

of  silver  was  the  overvaluation  of  subsidiary  coins  in 
countries  under  gold,  or  gold  exchange  standard.  India 
gives  a  striking  example  of  this.  The  Indian  silver  rupee 
weighs  11.664  grammes  916  2/3  fine  or  10.6920  grammes 
fine  which  is  .343747  of  one  ounce  pure  silver.  At  $1.00  the 
ounce  it  is  intrinsically  worth  $.343747  against  the  guar- 
anteed gold  exchange  value  of  the  rupee  of  16  pence  or 
1/15  of  $1  or  $0.32444.  The  subsidiary  coin  then  became 
more  valuable  than  the  standard  guaranteed  value,  thus 
depreciating  gold  exchange. 

Because  of  this  and  the  depreciation  of  British  exchange 
the  Indian  Government  has  been  obliged  to  advance  the 
value  of  the  rupee  successively  to  17,  18,  20,  22,  24  and 
26  pence  and  it  may  still  be  further  advanced  if  silver  goes 
higher  and  British  exchange  lower. 

Both  have  caused  the  dislocation  of  Indian  exchange  in 
the  United  States.  At  this  writing  with  silver  at  $1.32 
per  ounce,  the  silver  rupee  is  intrinsically  worth  .45  3/8 
cents.  At  $3.75  per  pound  sterling  the  26  pence  guaran- 
teed are  worth  only  40  5/8  cents  and  actual  rate  on  the 
market  is  45 .1/2  cents. 

In  Peru,  the  silver  "sol"  subsiduary  of  the  Gold  Unit — 
the  Pound,  weighs  25  grammes  of  silver,  900  fine  or  22  ^ 
grammes  of  pure  silver — .7234  of  one  ounce  and  is  worth, 
at  $1  per  ounce,  $.7234  against  $.48  2/3  supposed  to  rep- 
resent as  the  10th  part  of  the  Peruvian  Gold  Pound.  As 
soon  as  the  intrinsic  value  exceeded  the  representative 
value  the  silver  coins  disappeared  from  circulation  and 
the  Government  was  obliged  to  coin  nickel  as  subsidiary, 


Introduction  to  Second  Edition  11 

retaining  its  gold  standard  under  the  restrictions  estab- 
lished at  the  outbreak  of  the  war. 

Not  every  country  faced  the  same  trouble  on  this  ac- 
count. In  some,  like  Salvador,  on  a  silver  standard,  the 
conversion  or  redemption  of  notes  for  silver  had  been 
suspended  until  12  months  after  the  signing  of  peace- 
exchange  maintained  at  an  artificial  rate  far  above  what 
it  should  be  in  accordance  with  the  gold  price  of  silver 
until  last  September  when  it  adopted  the  Gold  Standard 
changing  the  name  of  its  unit  to  "Colon  "  (.7524  grammes 
of  fine  gold  equivalent  to  50  cents  American  gold).  In 
others,  silver  disappeared  entirely  from  circulation  and 
was  substituted  with  paper  money.  Mexico  reduced  the 
weight  of  its  silver  coin  in  December,  1918,  and  again  in 
November,  1919. 

A  list  of  the  countries  where  subsidiary  silver  money 
has  passed  the  value  of  the  standard,  with  silver  at  $1 
per  ounce,  is  given  in  this  book,  mentioning  the  proportion 
of  an  ounce  of  silver  contained  in  each. 

In  the  United  States  where  the  whole  dollars  (silver) 
have  a  gold  parity  of  $1.2929  per  ounce  and  fractional 
currency  of  $1.38239  the  problem  of  overvaluation  is  just 
presenting  itself.  If  the  price  of  silver  advances  beyond 
the  melting  point  it  would  be  difficult  to  keep  the  coins 
in  circulation.  With  perhaps  only  the  U.  S.  A.  as  excep- 
tion the  entire  world  is  practically  on  a  flat  paper  money 
basis,  relation  with  gold  and  silver  being  only  theoretical. 
In  every  country  conditions  of  foreign  exchanges  are  so 
disturbed  and  uncertain  that  it  would  be  idle  to  describe 


12  Modern  Foreign  Evchange 

them  in  detail  as  they  may  change  at  any  moment.  It  is 
therefore  preferable  to  describe  only  the  essential  features 
of  their  money  according  to  their  monetary  laws  hi  the 
understanding  that  it  is  all  only  nominal  for  the  present. 
The  author  has  been  delaying  the  publication  of  this 
second  edition,  waiting  for  something  definite  to  figure  on. 
But  the  first  edition  is  exhausted  and  there  is  a  very  large 
demand  for  something  more  up-to-date.  Thence  the 
reason  for  publishing  this  book  at  this  time. 

V.   GONZALES. 

New  York,  December,  1919. 


INTRODUCTION  TO  THE  FIRST  EDITION 

Knowledge  of  the  money  and  exchange  of  all  countries 
is  becoming  more  and  more  necessary  because  of  the  rapid 
expansion  of  international  commercial  relations. 

Years  ago  some  three  or  four  European  cities  alone  were 
the  centers  of  international  monetary  transactions  and 
these  absorbed  the  entire  volume  of  trade  clearings  from 
all  countries.  During  the  last  ten  or  fifteen  years  NEW 
YORK  has  become  a  very  important  market  for  exchange 
and  it  is  likely  that  some  other  cities  of  the  United  States 
will  soon  reach  the  same  position. 

The  development  of  our  foreign  trade  makes  it 
desirable  that  we  should  have  a  comprehensive  grasp  of 
foreign  exchange  as  each  domestic  commercial  center 
strives  for  as  much  direct  and  independent  business  as  it 
can  possibly  get. 

Foreign  trade  competition  has  become  so  keen  all  over 
the  world  that,  at  present,  it  is  not  enough  to  know  the 
cost  of  goods  and  incidentals  only.  To  sustain  an  in- 
telligent and  successful  struggle  it  is  also  necessary  to 
know,  thoroughly,  all  about  other  people's  money  and  its 
relation  to  our  money. 

Of  late  it  has  been  found  very  convenient  to  quote  and 
fix  prices  in  the  money  of  some  purchasing  countries. 

13 


14  Modern  Foreign  Exchange 

This  can  be  done  to  advantage  with  those  under  stable 
monetary  conditions. 

FOREIGN  EXCHANGE  is  no  longer  a  matter  of  concern  to 
exchange  dealers  alone.  It  is  a  subject  of  wide  interest 
to  all  who  have,  or  wish  for,  foreign  business. 

All  treatises  on  foreign  exchange  published  up  to  the 
present  tune  deal  with  the  subject  scientifically  and  are 
devoted  more  to  the  study  of  economic  principles  and 
history  than  to  the  description  of  money  and  exchange  in 
reference  to  international  trade. 

Facts,  as  they  stand,  are  summarized  and  condensed  in 
this  booklet  in  a  simple  and  comprehensive  form,  per- 
mitting even  those  without  any  special  preparation  to 
readily  understand  them.  It  shows  not  only  the  intrinsic 
equivalents  of  all  moneys  with  American  money  and  vice 
versa,  but  also  the  maximum  and  minimum  possible  rates 
of  exchange  with  all  countries,  and  affords  in  a  condensed 
form,  all  the  knowledge  that  business  men  need  at  hand  for 
their  foreign  commercial  transactions. 

V.  G. 

New  York,  January,  1914. 

NOTES 

To  avoid  confusion  all  weights  are  given  in  "grammes"  because  it 
is  the  standard  unit  of  weight  in  use  all  over  the  world.  All  reference 
to  the  "grain"  has  been  omitted. 

One  gramme  is  equivalent  to  15.43235639  grains.  The  Act  of 
July  28,  1856,  fixed  the  equivalent  as  15.432.  To  know  the  number  of 
"grains"  contained  in  any  number  of  "grammes,"  multiply  these  by 
15.432.  To  know  the  number  of  "grammes"  in  any  given  number  of 
"grains,"  divide  by  15.432. 


Introduction  to  First  Edition  15 

An  ounce  contains  480  grains.  Therefore  each  ounce  contains 
(l543235639)'  31-10349552  grammes,  roughly  given  as  31.104 
grammes. 

Five  decimals  are  given  for  the  sake  of  mathematical  exactness,  but 
in  business  only  two  are  used.  When  third  decimal  is  5  or  more,  add 
1  to  the  second.  When  using  three  decimals  follow  the  same  method. 
For  instance,  the  equivalent  of  the  Latin  Union  franc  is  given  as  .19295, 
as  the  fourth  decimal  is  9  the  third  is  increased  to  3,  and  is  often  men- 
tioned as  .193. 

Gold  is  quoted  in  London  on  the  basis  of  the  Ounce  Standard  which 
is  .91666  fine  (11/12),  in  the  United  States  is  quoted  on  the  basis  of  the 
ounce  fine  (1000/1000). 

1  ounce  standard  =  .916.666  fine. 
1  ounce  fine  =  1.090909  standard. 

Silver  is  quoted  in  London  on  the  basis  of  the  Ounce  Standard  which 
is  .925  fine  (37/40),  in  the  United  States  it  is  quoted  on  the  basis  of 
the  ounce  fine  (1000/1000). 

1  ounce  standard  =  .925000  fine. 
I  ounce  fine  =  1.081081  standard. 


MODERN  FOREIGN  EXCHANGE 

MONETARY  SYSTEMS 

There  are  four  standards  of  money  which  constitute  the 
basis  of  the  different  monetary  systems  of  the  civilized 
world.  They  are: 

1.  GOLD  STANDARD  wherein  GOLD  is  the  only  full  legal 

tender,  other  forms  of  money  being  maintained  at 
a  parity,  with  or  without  Government  guarantee, 
by  then-  permanent  conversion  into  gold  and  by 
means  of  the  limitation  of  their  supply. 

2.  GOLD  EXCHANGE  STANDARD  wherein  gold  and  other 

forms  of  money  are  legal  tender,  the  conversion  of 
the  latter  into  gold  being  guaranteed  directly  by 
the  Government  by  means  of  a  conversion  fund  or 
otherwise,  there  being  an  artificial  way  of  providing 
foreign  exchange  at  fixed  rates. 

3.  SILVER  STANDARD  wherein  SILVER  alone  is  legal  tender, 

other  forms  of  money  being  convertible  into  white 
metal  only;  and 

4.  INCONVERTIBLE  PAPER  MONEY  the  parity  of  which  is 

not  maintained  at  all  and  is  dependent  upon  the 
local  quotation  given  to  the  credit  of  the  Govern- 
ment. 

17 


18  Modern  Foreign  Exchange 

Every  country  has  its  own  monetary  system  based  on 
one  of  the  four  standards  as  described. 

The  three  metallic  standards  are  monometallic,  bimetal- 
lism having  been  abandoned  everywhere. 

Some  people  consider  as  bimetallic,  gold  standard  coun- 
tries in  which  some  SILVER  coins  are  given  unlimited 
legal  tender  power.  These  countries  maintain  the  parity 
of  such  coins  by  limiting  their  supply  to  a  certain  amount, 
indispensable  for  circulation  purposes  only.  This  is  rather 
a  defect  of  the  system  and  is  called  the  "Limping  stand- 
ard." 

Bimetallism  does  not  consist  in  the  legal  tender  quality 
given  to  SOME  pieces  of  SILVER,  when  GOLD  is  the  standard, 
but  in  allowing  the  free  coinage,  or  the  unlunited  supply, 
of  such  coins. 

None  of  the  countries  under  the  Gold  Standard  or  the 
Gold  Exchange  Standard  allow  the  free  and  unlimited 
coinage  of  silver.  The  right  is  reserved  to  the  Govern- 
ment and  the  supply  is  increased  only  when  the  needs  of 
the  country  demand  it. 

In  Silver  Standard  countries  gold  is  not  legal  tender  at 
any  fixed  ratio;  it  is  accepted  conventionally  in  reference 
to  the  gold  price  of  silver. 

There  are  forty-seven  systems  now  in  use,  of  which 

21  are  based  on  the  Gold  Standard, 
13  are  based  on  the  Gold  Exchange  Standard, 
9  are  based  on  the  Silver  Standard,  and 
4  are  based  on  Inconvertible  Paper  money. 


Monetary  Systems  19 

AMERICAN 
GOLD 

The  GOLD  STANDARD  is  represented  by  the  following 
units: 

1.  The  EGYPTIAN  POUND  divided  into  100  Piastres  of  Ten 

Ochr-el-guerch  or  milliemes,  each  of  4  Paras.  It  is  used 
in  Egypt  exclusively  and  contains  7.4375  grammes  of 
fine  GOLD.  It  is  equivalent,  in  American  money,  to. .  .  $4 . 94  307 

2.  The  BRITISH  POUND  STERLING  divided  into  20  Shillings  of 

12  pence.  It  is  used  in  Great  Britain  and  the  majority 
of  its  colonies.  It  weighs  7.32238  grammes  of  fine  gold 
and  is  equivalent  to 4.86  656 

3.  The  PERUVIAN  POUND  divided  into  10  Soles  of  100  centavos 

and  used  in  Peru  only.  It  weighs  7.32238  grammes  of 
fine  gold  being  exactly  like  the  British  Pound  and  is 
equivalent  to 4.86  666 

4.  The  PORTUGUESE  ESCUDO  divided  into  100  centavos  in  use 

hi  Portugal  and  the  majority  of  its  colonies.  It  weighs 
1.62585  grammes  of  fine  gold  being  equivalent  to 1 .08  05<J 

5.  The  URUGUAYAN  PESO  divided  into  100  Centesimos.    It  is 

used  only  in  Uruguay  and  weighs  1.55615  grammes  of 

fine  gold  being  equivalent  to 1 . 03  *24 

6.  The  NEWFOUNDLAND  DOLLAR  divided  into  100  cents  and 

used  exclusively  in  Newfoundland.  It  weighs  1.52551 
grammes  of  fine  gold  and  is  equivalent  to 1 .01  w 

7.  The  DOLLAR  divided  into  100  cents.    It  is  used  in  the 

UNITED  STATES  and  its  possessions  HAWAII  and  PORTO 
Rico  and  in  CANADA,  CUBA,  SANTO  DOMINGO,  LIBERIA, 
most  of  the  British  West  Indies,  British  Guiana,  and 
British  Honduras.  It  weighs  1.50464  grammes  of  fine 
gold  and  represents  the 1 .00 

8.  The  COLOMBIAN  PESO  divided  into  100  centavos.    It  is 

used  only  in  Colombia  and  weighs  1.46448  grammes  of 

fine  gold  and  is  equivalent  to 0.97  m 


20  Modem  Foreign  Exchange 

AMERICAN 
GOLD 

9.  The  RUSSIAN  ROUBLE  divided  into  100  Kopecks.  It  is 
used  in  all  Russian  territories  and  weighs  0.77423 
grammes  of  fine  gold  being  equivalent  to 0.51  4M 

10.  The  SALVADOREAN  COLON  divided  into  100  centavos,  in 

use  in  Salvador  only.    It  weighs  0.7524  grammes  of 

fine  gold  and  is  equivalent  to 0.50 

11.  The  JAPANESE  YEN  divided  into  100  Sen  of  10  Rin.    It  is 

used  in  Japan  and  its  possessions.  It  weighs  0.75 
grammes  of  fine  gold  and  is  equivalent  to 0 . 49  846 

12.  The  ECUADOREAN  SUCRE  divided  into  100  centavos,  in 

use  in  ECUADOR  alone.  It  weighs  0.73224  grammes  of 
fine  gold  (one-tenth  of  a  British  Pound)  and  is  equiva- 
lent to 0.48  «• 

13.  The  COSTARICAN  COLON  divided  into  100  centimes.    It  is 

used  only  in  Costa  Rica  and  weighs  0.7002  grammes  of 

fine  gold  being  equivalent  to 0.46  636 

14.  The  NETHERLANDS  FLORIN  or  GUILDER  divided  into  100 

cents.  It  is  used  in  the  Netherlands  (Holland)  and  its 
colonies,  Java,  Sumatra,  Curacao,  Guiana,  etc.  It 
weighs  0.6048  grammes  of  fine  gold  and  is  equivalent  to  0 . 40  m 

15.  The  BOLIVIAN  BOLIVIANO  divided  into  100  centavos,  used 

in  Bolivia  only.  It  is  not  coined  yet  but  is  to  weigh 
0.58579  grammes  of  fine  gold  (B.  12.50  to  the  £1)  and  is 
equivalent  to 0. 38  932 

16.  The  SCANDINAVIAN  KRONE  divided  into  100  Ore.   It  is 

used  in  the  Scandinavian  States — Denmark,  Sweden, 
Norway  and  Iceland.  (In  Sweden  it  is  called  KRONA.) 
It  weighs  0.40323  grammes  of  fine  gold  and  is  equivalent 
to 0.26  7W 

17.  The  GERMAN  MARK  divided  into  100  Pfennige.    It  is  in 

use  throughout  the  German  Empire  and  in  all  Ger- 
man colonies,  except  East  Africa.  It  weighs  0.35842 
grammes  of  fine  gold  and  is  equivalent  to 0.23  s21 

18.  The  AUSTRIAN  KRONE  divided  into  100  Heller.   It  is  used 

only  in  Austria-Hungary.     (In  Hungary  it  is  called 


Monetary  Systems  21 

AMERICAN 
GOLD 

KORONA  and  is  divided  into  FILLER.)  It  weighs 
0.30488  grammes  of  fine  gold  and  is  equivalent  to 0 . 20  M3 

19.  The  MONTENEGRIN  PERPER  divided  into  100  PARAS.    It 

is  in  use  exclusively  in  Montenegro  and  weighs  0.30488 
grammes  of  fine  gold  being  equivalent  to 0 . 20  *' 

20.  The  LATIN  UNION  FRANC  divided  into  100  centimes.   It  is 

used  in  FRANCE  and  its  COLONIES,  BELGIUM,  the  BEL- 
GIAN CONGO,  SWITZERLAND  and  MONACO  under  the 
same  name  and  in  BULGARIA  where  it  is  called  LEV 
divided  into  STOTINKI,  RUMANIA  where  it  is  called  LEU 
and  is  divided  into  BANI,  SERBIA  as  DINAR  divided  into 
PARA,  GREECE  under  the  name  of  DRACHMA  divided 
into  LEPTA,  ITALY  as  LIRA  divided  into  CENTESIMI, 
SPAIN  where  it  is  called  PESETA  and  is  divided  into 
CENTIMOS,  FINLAND  as  MARKKA  divided  into  PENNIA 
and  VENEZUELA  where  it  takes  the  name  of  BOLIVAR 
and  is  divided  into  CENTIMOS.  It  weighs  0.29032 
grammes  of  fine  gold  and  is  equivalent  to 0.19  W8 

21.  The  TURKISH  PIASTRE  divided  into  40  Paras,  used  in 

Turkey  and  its  dependencies,  not  otherwise  mentioned. 
It  weighs  0.06615  grammes  of  fine  gold  and  is  equivalent 

to 0.04  »« 

The  GOLD  EXCHANGE  STANDARD  is  used  by  the  following 
countries: 

1.  PANAMA,  where  the  unit  is  called  BALBOA  and  is  divided 

into  100  cente"simos.  Its  currencey  consists  of  American 
gold  coins  and  notes  and  Panamanian  SILVER  Half- 
Balboas  or  PESOS  (to  which  the  Government  guarantees 
the  value  of  50  cents  in  United  States  currency).  The 
theoretical  unit  weighs  1.50464  grammes  of  fine  gold  and 
is  equivalent  to $1 . 00 

2.  NICARAGUA.    The  unit  is  the  CORDOBA  divided  into  100 


22  Modem  Foreign  Exchange 

AMERICAN 
GOLD 

centavos.  Circulation  consists  of  SILVER  coins  and  bank 
notes  guaranteed  to  be  payable  in  gold.  The  theoretical 
unit  weighs  1.50464  grammes  fine  gold  and  is  equivalent 
to 1.00 

3.  The    STRAITS    SETTLEMENTS    and    FEDERATED    MALAY 

STATES.  The  unit  is  the  DOLLAR  divided  into  100  cents 
and  guaranteed  by  the  British  Government  to  represent 
28  pence.  It  circulates  SILVER  coins  (20.217  grammes 
.900  fine  to  the  DOLLAR)  and  Government  notes  which 
are  redeemed  at  the  rate  of  28  pence  per  DOLLAR.  The 
theoretical  unit,  then,  weighs  0.85428  grammes  of  fine 
gold,  equivalent  to 0.56  m 

4.  The  PHILIPPINE  ISLANDS.    The  unit  is  the  PESO  divided 

into  100  centavos.  The  circulation  is  composed  of 
SILVER  coins  (20  grammes  .800  fine  to  the  PESO)  and 
Government  notes  to  which  the  American  Govern- 
ment guarantees  a  value  of  50  cents  American  gold 
per  Peso.  The  theoretical  unit  then  weighs  0.75232 
grammes  of  fine  gold,  equivalent  to 0.50 

5.  MEXICO.    The  unit  is  the  PESO  divided  into  100  centavos. 

'the  PESO  according  to  the  law  is  0.75  gramme  of  fine 
gold,  but  silver  Pesos  are  given  full  legal  tender  power, 
the  Government  maintaining  the  parity  of  these  by 
means  of  a  conversion  fund  that  provides  for  the  ex- 
change of  silver  Pesos  into  gold,  and  for  foreign  ex- 
change at  fixed  rates.  The  unit  is  then  0.75  gramme 
of  fine  gold,  equivalent  to 0.49  846 

6.  ARGENTINA.    The  unit  is  the  PESO  divided  into  100  cen- 

tavos. The  legal  currency  consists  of  PAPER  (Govern- 
ment notes)  to  which  the  Government  guarantees  the 
value  of  Frs.  2.20  per  PESO  (44%  of  the  former  value, 
which  was  Frs.  5  per  PESO).  This  parity  is  maintained 


Monetary  Systems  23 

AMERICAN 
GOLD 

by  means  of  a  conversion  fund  which  permanently  ex- 
changes PAPER  for  GOLD  and  vice  versa  at  the  fixed  rate 
of  Frs.  2.20  in  Gold  per  Paper  Peso.  The  theoretical 
unit,  then,  represents  0.63871  grammes  of  fine  gold, 
equivalent  to 0.42  44» 

7.  SIAM.   The  unit  is  the  TICAL  divided  into  100  Satang  (or  4 

Salung  of  25  Satang).  The  present  medium  of  circula- 
tion is  SILVER  coins  and  Government  notes  to  both  of 
which  the  Siamese  Government  guarantees  a  gold  value 
of  0.558  gramme  of  fine  gold  per  Tical.  This  guarantee 
is  made  effective  by  means  of  a  conversion  fund  that  pro- 
vides for  exchange  of  silver  and  notes  into  gold  or  foreign 
bills  at  said  rate.  The  theoretical  unit  weighs,  then, 
0.558  gramme  of  fine  gold,  equivalent  to 0.37  °85 

8.  INDIA.   The  unit  is  the  RUPEE  divided  into  16  Annas  of  12 

pies.  The  circulation  is  composed  of  SILVER  coins  and 
Government  notes  guaranteed  by  the  British  Govern- 
ment at  the  rate  of  16  pence  per  Rupee  or  15  Rupees 
per  £1.  Rupees  are  not  coined  in  gold,  the  British  Sov- 
ereign being  the  legal  gold  coin.  Silver  RUPEES  (11.664 
grammes  of  silver  .916.66  fine)  are  full  legal  tender,  and 
their  parity  with  gold  is  maintained  by  the  conversion 
fund  which  provides  for  exchange  at  15  Rupees  per  £1. 
The  theoretical  unit,  then,  weighs  0.48816  gramme  of 
fine  gold,  equivalent  to  (*) 0 . 32  444 

9.  CEYLON.   The  unit  is  the  RUPEE,  as  in  India,  but  is  divided 

into  100  cents  (instead  of  into  Annas  and  Pies) .  Circu- 
lation is  composed  of  silver  coins  and  Government  notes, 
both  of  which  are  guaranteed  by  the  British  Govern- 
ment at  the  rate  of  16  pence  per  Rupee.  The  theoret- 
ical unit,  like  in  India,  represents  0.48816  gramme  of 

fine  gold,  equivalent  to1 0. 32  444 

1  Rate  has  been  advanced  to  26  pence  per  Rupee. 


24  Modern  Foreign  Exchange 

AMERICAN 
GOLD 

10.  BRAZIL.    The  unit  is  the  MILREIS  divided  into  1,000  Reis. 

The  circulating  medium  and  the  only  legal  money  of  the 
country  is  composed  of  Government  notes  guaranteed 
at  the  rate  of  16  pence  per  MILREIS.  Silver  and  nickel 
coins  circulate  also  as  fractions  of  the  unit  and  are  legal 
tender  for  small  amounts.  The  theoretical  unit  is  exactly 
like  that  of  India  and  Ceylon  and  represents  0.48816 
grammes  of  fine  gold,  equivalent  to 0 . 32  444 

11.  BRITISH  EAST  AFRICA  and  ZANZIBAR  PROTECTORATE.   The 

unit  is  the  RUPEE  divided  into  100  cents.  Circulation 
is  composed  of  SILVER  coins  (11.664  grammes  .916.66 
fine  to  the  Rupee)  and  Government  notes,  both  guaran- 
teed at  the  rate  of  15  Rupees  to  £1.  The  theoretical 
unit,  as  in  Ceylon  and  India,  represents  0.48816  gramme 
of  fine  gold,  equivalent  to 0.32  444 

12.  ITALIAN  SOMALILAND.   The  unit  is  the  RUPEE  divided  into 

100  Bese  and  circulation  is  limited  to  silver  coins  (11.664 
grammes  .916.66  fine  to  the  Rupee)  guaranteed  by  the 
Italian  Government  at  the  rate  of  15  Rupees  to  £1.  The 
theoretical  unit  represents,  then,  0.48816  gramme  of  fine 
gold  equivalent  to 0 . 32  444 

13.  EAST  AFRICA  (formerly  GERMAN).   The  unit  is  the  RUPEE 

divided  into  100  Heller.  It  circulates  silver  coins 
(11.664  gramme  .916.66  fine  to  the  Rupee)  guaranteed 
by  the  German  Government  at  the  rate  of  15  Rupees 
to  Mks.  20.  The  theoretical  unit  represents  0.47790 

gramme  of  fine  gold,  equivalent  to 0.31  761 

The  SILVER  STANDARD  is  in  use  in  the  following  countries: 
1.  CHINA,  where  quite  a  variety  of  UNITS  exist.   Each  prov- 
ince has  its  own  unit,  but  the  official  one,  is  the  YUAN 
divided  into  10  chios,  of  10  fen,  of  10  li.    This  unit 
weighs  26.85672  grammes  of  silver  .900  fine  and  contains 
1  Rate  has  been  advanced  to  26  pence  per  Rupee. 


Monetary  Systems  25 

24.171048  grammes  of  fine  silver  which  is  equivalent  to 
0.77710  oz.  fine. 

As  the  price  of  silver  fluctuates  almost  constantly  it  is  im- 
possible to  give  any  fixed  equivalent,  but  it  is  easy  to  find  it 
by  reference  to  the  portion  of  an  ounce  fine  contained  in  the 
unit,  multiplying  this  by  the  price  of  the  fine  ounce  of  silver. 
At  the  price  of  100  cents  American  Gold  per  fine  ounce  the 
YUAN  mentioned  would  be  worth  $0.77710.  In  order  to  facili- 
tate the  calculation  of  the  value  of  this  unit,  as  well  as  of  other 
SILVER  STANDARD  UNITS,  their  proportion  of  fine  ounces  is 
given. 
The  local  TAELS  are  as  follows: 

AMOY  Tael 36.8861  grammes  fine— 1.185895  oz.  fine 

Canton 36.7752  1.182331 

Chefoo 35.2793  1.134236 

Chinkiang 36.0327  1.158458 

Foochow 34.1198%  1.096958 

Haikwan 37.5317  1.206684 

Hankow 34.5119  1.109565 

Kiaochow 35.7444  1.149273 

Nanking 36.5008  1.173508 

Niuchwang 34.5914  1.112120 

Ningpo 35.4641  1.140178 

Peking 35.9602  1.156127 

Shanghai 33.6927  1.083224 

Swatow 34.0732  1.095460 

Takau 37.1196  1.193402 

Tientsin 35.7444  1.149273 

At  present  the  Government  is  planning  to  adopt  the  gold 
standard  on  the  same  basis  as  Japan. 

2.  FRENCH  INDO-CHINA.    The  unit  is  the  PIASTRE  divided  into  100 

centimes  of  5  Sapeques.  It  weighs  27  grammes  of  silver  .900 
fine  and  therefore  contains  24.300  grammes  of  fine  silver  or 
0.78125  fine  oz. 

3.  HONGKONG.    The  unit  is  the  DOLLAR  divided  into  100  cents.    It 

weighs  26.956  grammes  of  silver  .900  fine,  and  contains  24.2604 


26  Modern  Foreign  Exchange 

grammes  fine  or  0.779976  fine  oz. 

4.  ABYSSINIA.    The  unit  is  the  TALARI  divided  into  100  Besa.    It 

weighs  28.075  grammes  .835  fine  and  contains  therefore  23.44263 
grammes  fine  silver  or  0.753685  oz.  fine. 

5.  MOROCCO.    The  unit  is  the  RIAL  divided  into  20  Belions.     It 

weighs  25  grammes  of  silver  .900  fine  or  22.5  grammes  fine 
which  is  0.723379  fine  oz. 

6.  HONDURAS.    The  unit  is  the  PESO  divided  into  100  centavos.    It 

weighs  25  grammes  of  silver  .900  fine  and  contains  therefore 
22.5  grammes  fine  which  is  0.723379  fine  oz. 

7.  ERITREA  (ITALIAN  COLONY).    The  unit  is  the  Tallero  divided  into 

100  centesimi.  It  weighs  25  grammes  of  silver  .900  fine  and 
contains  therefore  22.5  grammes  fine,  or  0.723379  oz.  fine. 

8.  AFGHANISTAN.    Uses  the  Indian  Rupee  at  its  silver  value.    The 

Indian  Rupee  weighs  11.664  grammes  of  silver  .916.66  fine  and 
contains  10.69192  grammes  fpie,  or  0.343747  oz.  fine. 

9.  PERSIA.  The  unit  is  the  KRAN  divided  into  20  SHAHIS  of  50  DINARS. 

It  weighs  4.605  grammes  silver  .900  fine  or  4.1445  grammes  fine, 
or  0.133246  oz.  fine. 

INCONVERTIBLE  PAPER  MONEY  is  the  legal  currency  of  only  four 
countries  at  present.    They  are: 

1.  CHILE.    The  unit  is  the  PESO  divided  into  100  centavos.    Accord- 

ing to  the  existing  law  it  should  have  the  intrinsic  equivalence 
of  18  British  pence— 0.599103  grammes  gold  .916.66  fine.  But 
this  law  is  not  in  operation  and  the  circulation  is  composed  of 
Government  notes  which  are  quoted  on  the  market  at  rates 
fluctuating  between  10  and  11  pence  per  PESO. 

2.  GUATEMALA.    The  unit  is  the  PESO  divided  into  100  centavos. 

Its  monetary  system  is  based  on  SILVER  (unit  of  25  grammes 
.900  fine),  but  at  present  it  circulates  only  inconvertible  paper 
money  subject  to  unlimited  fluctuation  since  there  is  no  provi- 
sion for  the  redemption  or  maintenance  of  any  value  in  gold  for 
the  notes. 


Monetary  Systems  27 

3.  HAITI.    The  unit  is  the  GOURDE  divided  into  100  centimes.    Its 

monetary  system  is  nominally  based  on  gold  (1.6129  grammes 
.900  fine),  but  it  circulates  only  inconvertible  paper  subject  to 
unlimited  fluctuation.  It  has  recently  passed  a  law  adopting 
the  Gold  Standard  on  the  basis  of  0.418  gramme  of  gold  .900 
fine  to  the  Gourde,  which  is  equivalent  to  $0.25  American  money. 

4.  PARAGUAY.    The  unit  is  the  PESO  divided  into  100  centavos.    The 

monetary  system  is  based  nominally  on  a  GOLD  PESO  of  1.6129 
grammes  .900  fine,  but  circulation  at  present  is  confined  to  Gov- 
ernment irredeemable  notes,  subject  to  unlimited  fluctuation. 


BASIS    OF    EXCHANGE. 
INTRINSIC    EQUIVALENCE 

The  basis  of  MONETAKY  EXCHANGE  between  countries 
lies  in  the  relation  existing  between  the  INTRINSIC  GOLD 
VALUE  of  their  respective  moneys. 

The  American  dollar  contains  1.671818  grammes  of 
gold  nine-tenths  (.900)  fine  and  the  British  Pound  sterling 
7.98805  grammes  gold  .9162/3  fine.  The  BASIS  of  exchange 
between  American  money  and  British  money  is  the  rela- 
tion existing  between 

1.671818  grammes  .900  fine,  and 
7.98805  grammes  .9162/s  fine. 

To  find  this  relation  both  quantities  must  be  reduced  to 
fine  gold  which  is  ascertained  by  multiplying  the  WEIGHT 
by  the  FINENESS. 

Thus  the  American  dollar  contains  (1.671818  X  .900) 
1.50464  grammes  fine  gold,  and  the  British  Pound  (7.98805 
X  .916.66)  7.32238  grammes  fine  gold.  The  relation 
between  them  is: 


7 

=  4.86656  American  dollars  to  £1. 


=  0.205485  of  £1  to  one  dollar. 
7.32238 

28 


Basis  of  Exchange — Intrinsic  Equivalence  29 

As  the  British  Pound  is  divided  into  20  shillings,  the 
above  fraction  would  be  (0.205485  X  20)  4.10970  shillings. 
Again,  as  the  shilling  is  divided  into  12  pence,  the  fraction 
(0.10970)  would  be  (0.10970  X  12)  I.316  penny.  This  is 
then  4  shillings  and  I.316  penny,  usually  quoted  49.316 
pence. 

A  similar  formula  may  be  expressed  in  the  moneys  of  all 
GOLD  STANDAKD  countries. 

The  Austrian  "  Krone "  contains  0.30488  grammes  gold 
fine  and  the  German  "Mark"  (or  Reischmark)  contains 
0.35842  grammes  gold  fine.  To  ascertain  the  relation 
between  Austrian  krones  and  German  marks,  divide 

— =  0.8506  German  marks  to  the  Austrian  krone. 

0.35842 

To  find  the  relation  between  German  marks  and  Austrian 

0  35482 

krones,   reverse   the   factors  — -=1.1756   Austrian 

0.30488 

krones  to  the  German  mark. 

When  dealing  with  countries  under  the  "gold  exchange 
standard,"  the  amount  of  gold  GUARANTEED  to  be  given 
by  the  Government  for  each  unit  of  money  is  the  basis  of 
comparison. 

The  value  of  American  money  in  Indian  rupees  is 
determined  by  the  number  of  grammes  of  fine  gold  con- 
tained in  the  American  dollar  compared  with  thpse 
guaranteed  by  the  British  Government  to  be  given  for 
each  rupee.  This  number  is  the  one  corresponding  to 
16  pence  or  the  FIFTEENTH  PART  of  one  Pound  Sterling. 
The  fifteenth  part  of  7.32238  is  0.488158  gramme  fine 


30  Modern  Foreign  Exchange 

gold.     Therefore  one  American  dollar  is  equivalent  to 

^^  =  3.08226  Rupees. 
0.48816 

As  the  rupee  is  divided  into  16  "Annas,"  the  fraction 
(0.08226)  is  (0.08226  X  16)  I.31616  Annas.  Again,  as  the 
"Anna"  is  divided  into  12  "Pies,"  the  fraction  0.31616  is 
(0.31616  X  12)  3.79392  pies,  practically  4  pies.  Therefore 
the  American  dollar  is  intrinsically  equivalent  to  Rupees  3, 
Annas  1,  Pies  4  (which  is  expressed  Rp.  3. 1. 4). 

The  relation  between  the  Indian  rupee  and  the  American 
dollar  can  be  found  by  reversing  the  dividend  and  divisor, 

C\  AQQI  f\ 

— ?£_^=  0.324437.     Therefore  the  Indian  rupee  is  in- 
1.50464 

trinsically  equivalent  to  $0.324437  American  dollars. 

This  relation  exists  just  so  long  as  the  Government 
fulfils  its  obligation  to  give  the  guaranteed  amount  of 
gold  for  every  unit  of  currency.  When  it  fails  to  do  so  the 
currency  falls  to  its  silver  value,  if  circulation  is  composed 
of  silver  coins,  or  becomes  "inconvertible  paper  money" 
with  no  relation  whatever  to  gold,  and  consequently 
without  any  basis  for  exchange  with  other  countries  if  its 
circulating  medium  is  paper.1 

1  It  must  be  perfectly  well  understood  that  this  refers  to  the  time 
when  gold  was  (and  whenever  gold  may  be  again)  the  basis  of  monetary 
systems— (actual  gold,  guaranteed  gold,  or  the  gold  price  of  silver). 
At  present  almost  all  countries  are  on  an  inconvertible  paper  money 
basis,  having  only  a  theoretical  relation  to  gold.  Weights  of  units  are 
referred  to  for  conversion  purposes  only,  and  exchanges  are  figured  on 


Basis  of  Exchange — Intrinsic  Equivalence          31 

The  relation  between  gold-standard  and  gold-exchange- 
standard  countries,  and  countries  under  the  silver  stand- 
ard is  found  by  ascertaining  first  the  gold-value  of  the 
silver  unit,  and  then  comparing.  As  silver  fluctuates  the 
relation  is  fluctuating. 

To  find  the  gold-value  of  the  unit  (silver),  multiply  its 
weight  by  the  price  of  silver  on  the  market.  This  is  quoted 
in  New  York  on  the  ounce  of  fine  metal  (1000  fine). 

To  find  the  relation  between  the  "Dollar"  of  Hongkong 
and  the  American  dollar,  first  ascertain  the  gold-value  of 
such  Dollar. 

The  Hongkong  Dollar  contains  26.956  grammes  silver, 

such  proportions  quoting  at  times  "par,"  "  premium"  or  "discount" 
as  if  such  relation  existed  in  fact. 

The  equivalent  of  the  Rupee  mentioned  refers  to  a  "par"  value 
considering  both  the  Rupee  and  the  American  Dollar  as  if  gold.  Gold 
does  not  count  for  the  present,  in  the  relation  between  these  two 
moneys,  both  because  the  conversion  of  the  Rupee  is  not  made  into 
gold  but  into  London  exchange,  and  because  the  Silver  Rupee  (actual 
currency)  has  a  value  greater  than  its  guaranteed  sterling  value  (16 
pence).  The  rate  of  the  Rupee  is  now  figured  on  the  valuation  in 
British  Exchange  fixed  from  time  to  time  by  the  Indian  Government 
as  an  emergency  measure,  and  naturally  on  the  corresponding  value  of 
such  (British)  exchange  in  the  United  States.  Rupees  are  quoted  on 
the  market  independently  and  not  always  the  rates  keep  pace  with  its 
valuation  in  British  exchange. 

The  lifting  of  American  restrictions  on  the  export  of  silver  and  the 
possible  removal  of  restriction  on  its  import  into  India  will  probably 
advance  the  price  of  the  white  metal  and  the  rate  of  exchange  for 
rupees.  Coining  of  Rupees  is  not  free,  however,  and  rates  of  exchange 
probably  will  not  follow  too  closely  the  price  of  silver. 


32  Modern  Foreign  Exchange 

.900  fine,  which  is  24.2604  grammes  fine.    An  ounce  con- 
tains 31.104  grammes,  and  the  Hongkong  Dollar  then 

24  2604 
represents  -TTTTT-  =  0.77.9976  ounce. 


If  the  price  of  silver  is  100  cents  per  ounce  fine,  the  Dol- 
lar of  Hongkong  will  be  equivalent  to  (0.779976  X  100) 
$0.779776  American  gold. 

To  find  the  intrinsic  equivalent  of  the  American  dollar 
in  Hongkong  money  (with  silver  at  100  cents  per  ounce 
fine),  divide  1  by  0.779676.  The  result  is  $1.28260  Hong- 
kong currency  for  each  American  dollar. 

The  relation  will  always  change  with  the  variation  in 
the  price  of  silver. 

In  every  case  by  multiplying  the  fine  silver  contained 
in  the  unit  by  the  market  price  of  silver,  the  gold-value  of 
the  unit  will  be  found. 

Silver  coins  in  gold-standard  or  gold-exchange-standard 
countries  are  only  SUBSIDIARY,  and  are  REPRESENTING  A 
GOLD  PORTION  OF  THE  UNIT.  They  are  usually  legal  tender 
for  only  small  amounts  and  their  intrinsic  value  in  gold 
has  nothing  to  do  with  exchange. 

The  relation  between  all  other  countries  and  those  hav- 
ing inconvertible  paper  money  can  only  be  found  by  as- 
certaining ANY  GIVEN  DAY  the  amount  of  gold  given  by  the 
public  for  the  unit.  This  money  has  no  intrinsic  value 
whatsoever,  and  its  gold-value  depends  entirely  on  what 
the  people  are  willing  to  accept  it  for.2 

2  Subsidiary  silver  currency  had  never  any  effect  on  foreign  ex- 
changes as  its  only  function  was  to  represent  fractions  of  the  standard 


Basis  of  Exchange — Intrinsic  Equivalence          33 

unit.  As  a  rule,  its  intrinsic  value  was  inferior  to  the  value  repre- 
sented. It  was  coined  for  convenience  of  circulation  only  and  it  was 
to  the  interest  of  each  country  to  retain  it  within  its  borders  by  giving 
it  a  representative  value  higher  than  its  intrinsic  value. 

The  unusual  advance  in  the  price  of  silver,  due  to  its  increased  cost 
and  shortage  of  production,  as  well  as  its  excessive  demand,  caused  a 
great  disturbance  wherever  the  intrinsic  value  of  subsidiary  silver 
coins  became  greater  than  their  representative  value.  This  happened 
in  the  fifteen  countries  as  listed  on  page  105. 

Conditions  were  not  the  same  in  all.  Some  had  gone  into  incon- 
vertible paper  completely  and  silver  had  already  disappeared  from 
circulation.  Others  maintained  artificial  rates  of  exchange  prohibiting 
exportation  of  silver.  In  others,  silver  disappeared  from  circulation 
as  a  natural  development  and  a  substitute,  paper  or  nickel,  was  tem- 
porarily adopted. 

In  the  table  (pp.  105-107),  the  intrinsic  value  is  given  considered  at 
$1  per  ounce  fine.  This  price  is  by  no  means  fixed,  it  can  increase  or 
decrease.  No  one  can  tell  what  course  it  will  follow.  The  proportion  of 
an  ounce  fine  per  unit  being  given,  it  is  easy  to  find  out  the  value  of 
the  unit  when  the  price  of  silver  changes.  Only  intrinsic  value  is 
given.  Not  rates  of  exchange. 

To  figure  exchange  rate,  other  factors  have  to  be  considered,  as 
abrasion,  transportation,  insurance,  delay  (interest),  etc.  (see  page  94) 
and  then  the  possibility  of  importing  or  exporting  it  as  bullion. 

The  figures  mentioned  in  the  last  column  as  "gold  parity  of  silver" 
are  the  prices  at  which  the  metal  contents  of  the  coins  would  be  in- 
trinsically worth  their  face  value  (in  gold.) 

Abrasion  is  not  taken  into  consideration,  nor  expense  of  transporta- 
tion and  delay  (interest).  These  expenses  cannot  be  figured  on  an 
even  proportion  as  they  differ  according  to  distance  and  transportation 
facilities. 

The  information  is  given  more  for  reference  than  for  any  practical 
purpose  as  very  little  exchange,  if  any,  would  ever  be  utilized  in  moving 
subsidiary  coins.  * 


34  Modem  Foreign  Exchange 

Further  advance  in  the  price  of  silver  may  suggest  the  necessity  of 
reducing  the  weight  of  the  coins  as  was  done  a  few  years  ago  in  the 
Philippines  and  lately  in  Mexico. 

The  "gold"  parity  is  based  on  the  supposition  that  gold  is  the  com- 
parative value.  For  instance,  when  mentioning  that  the  French  Five 
Francs  piece  (intrinsically  worth  at  $1  the  ounce  $0.72338  and  repre- 
senting $0.96475)  would  be  worth  "par"  if  silver  advanced  to  $1.33367 
per  ounce  it  is  supposed  that  the  "5  francs"  represent  a  par  value  of 
$.96475  as  if  "gold"  francs  and  "gold"  dollars.  In  figuring  under 
present  conditions  it  must  be  borne  in  mind  that  there  is  a  great  dif- 
ference between  "gold"  francs  (or  any  other  money)  and  "exchange" 
francs.  Gold  francs  are  worth  $.19295  each  or  $.96475  for  five  francs 
in  "American  Currency,"  but  "exchange"  francs  (at  sight)  are  worth 
only  about  $.8696  at  present  rate  (Fes.  11.50  per  $1)  American  cur- 
rency. If  the  price  of  silver  advanced  to  $1.33367  per  ounce  the  5 
Francs  coin  would  be  worth  intrinsically  $0.96475  American  Cur- 
rency or  the  same  as  5  Francs  in  gold. 

Exchange  on  France  (or  any  other  country)  is  quoted  for  payment 
in  "currency"  which  is  now  everywhere  paper,  inconvertible  for  the 
moment  into  any  metal. 


INTRINSIC  EQUIVALENTS  AND  COMMERCIAL 
RATES  OF  EXCHANGE 

The  equivalents  given  for  GOLD  STANDARD  AND  GOLD 
EXCHANGE  STANDARD  countries  in  Table  of  Monetary 
units  refer  to  their  intrinsic  GOLD  value  (Par  or  Mint 
Par). 

As  to  SILVER  STANDARD  countries  the  equivalents  are 
given  considering  SILVER  at  100  cents  per  oz.  fine.  This 
equivalence  is  variable  since  the  gold  price  of  silver 
fluctuates.  To  facilitate  calculation  reference  to  the 
OUNCE  is  given  in  each  instance.  Knowing  the  price  of 
silver,  it  is  easy  to  find  the  intrinsic  gold  equivalent. 

Inconvertible  paper  money,  having  no  fixed  value,  can 
have  no  fixed  equivalent.  Present  quotations  are  taken  to 
give  an  approximate  equivalent  with  American  money. 
It  is  well  to  have  in  mind  that  CHILE  quotes  its  currency 
in  reference  to  BRITISH  PENCE  per  PESO,  and  GUATEMALA, 
HAITI,  and  PARAGUAY  in  reference  to  their  former  gold 
unit. 

When  CHILEAN  exchange  is  quoted  at,  say,  10  pence  it 
means  that  exchange  on  London  is  sold  at  the  rate  of  10 
pence  per  PESO,  and  consequently  one  British  Pound  is 
worth  24  Chilean  pesos. 

GUATEMALA,  although  having  a  monetary  system  based 
on  SILVER  and  using  inconvertible  paper  only  calculates 

35 


36  Modern  Foreign  Exchange 

its  rates  of  exchange  in  reference  to  a  fictitious  GOLD 
unit  which  was  taken  as  equivalent  to  $5.00  per  £1. 
When  rates  on  London  are  quoted,  at  say,  1500%  it 
means  that  £1  is  worth  the  former  $5.00  PLUS  1500%,  or 
$5.00  plus  $75.00,  or  $80.00.  When  this  rate  is  quoted  on 
New  York  it  means  that  $1.00  American  money  commands 
$15.00  premium,  or  $16.00  currency  in  all  for  $1.00  Amer- 
ican gold. 

HAITI  quotes  its  rates  hi  reference,  also,  to  a  GOLD 
GOURDE  nominally  equivalent  to  Frs.  5.  When  exchange 
on  New  York  is  quoted  at  316%,  it  means  that  $1.00 
American  money  is  worth  1  Gourde  PLUS  3.16  for  pre- 
mium or  Gourdes  4.16  per  $1.00  American.  As  soon  as  the 
new  law  is  in  operation  exchange  will  be  quoted  probably 
on  a  premium  of  a  percentage  above  the  par  which  will 
be  $0.25  American  money  to  the  Gourde. 

PARAGUAY  refers  also  to  a  GOLD  PESO  (the  former 
Argentine  gold  Peso),  and  its  rates  are  considered  in  the 
same  way  as  in  the  three  countries  just  mentioned. 

Commercial  rates  of  exchange  differ  from  the  PAR 
VALUE  in  proportion  to  expense  and  delay  incurred  by  the 
transfer  of  money. 

Such  rates  vary  according  to  the  normal  movement  of 
supply  and  demand,  but  fluctuations  are  confined  within 
the  intrinsic  gold  equivalence  of  the  different  moneys  plus 
or  minus  transportation,  delay,  and  incidental  expenses 
for  moving  specie  (gold  points). 

While  it  is  impossible  to  determine  a  fixed  commercial 
rate  of  exchange  since  this  is  subject  to  natural  fluctua- 


Intrinsic  Equivalents  and  Commercial  Rates  of  Exchange   37 

tion,  high  and  low  points  can  be  mathematically  deter- 
mined for  countries  using  a  uniform  standard — effective 
(gold  standard)  or  guaranteed  (gold  exchange  standard). 

The  Russian  rouble  is  equivalent  at  par  to  $0.51456 
American  money;  exchange  rates  fluctuate  within  the 
gold  points  with  Russia  which  are  $0.505  as  "low"  and 
$0.525  as  "high." 

When  having  to  transfer  money  from  Russia  to  the 
United  States  it  should  be  possible  to  obtain  not  less  than 
$0.505  American  money  per  Rouble  or  $5050  for  a  draft  of 
10,000  Roubles.  If  less  is  offered  it  would  be  more  ad- 
vantageous to  import  the  gold  from  Russia  and  mint  it 
into  American  money.  Ten  thousand  roubles  are  in- 
trinsically equivalent  to  $5145.60  (each  rouble  containing 
0.77423  gramme  fine  gold  against  1.50464  grammes  fine 
gold  also  contained  in  the  American  dollar),  and  this  is 
$95.60  in  excess  of  the  $5050  mentioned.  These  $95.60 
would  safely  cover  expenses  of  transportation  and  delay. 
A  draft  would  secure  the  money  at  once  while  importation 
of  gold  would  require  at  least  ten  to  twelve  days  for 
transportation. 

When  having  to  transfer  money  from  th'e  United  States 
to  Russia  it  should  be  possible  to  buy  a  draft  at  no  more 
than  $0.525  per  rouble.  If  more  was  asked  it  would  be 
better  to  export  gold  and  mint  it  into  Russian  money. 
If  $5250  hi  gold  were  exported  they  would  be  minted  into 
10202.75  roubles  (the  parity  being  1.94338  roubles  per 
American  dollar).  The  202.75  in  excess  of  the  10,000 
would  cover  expenses,  including  mint  charges  (slightly  less 


38  Modern  Foreign  Exchange 


than  M%)-  In  this  case  there  is  no  delay,  the  same  time 
being  needed  to  send  a  draft  as  to  send  the  gold. 

Almost  all  foreign  banks  buy  gold  coins  of  other  coun- 
tries very  closely  within  their  mint  value,  and  the  necessity 
of  minting  them  is  practically  avoided. 

In  countries  under  the  Silver  Standard  limits  of  fluctua- 
tions of  exchange  cannot  be  fixed  as  they  depend  on  the 
gold  price  of  the  white  metal  which  is  variable.  Fluctua- 
tion in  countries  using  inconvertible  paper  currency  is 
unlimited. 

Tables  on  pages  86  to  93  show  the  limits  of  fluctuation 
in  normal  times  which  are  subject  to  become  closer  to  the 
par  value  by  means  of  increasing  transportation  facilities 
which  shorten  distances  and  reduce  expenses. 

The  figure  mentioned  are  absolutely  conservative  and 
refer  to  exchange  through  currency  and  ordinary  short- 
time  commercial  paper.  Other  instruments  such  as  cable 
transfers,  letters  of  credit,  and  international  cheques  com- 
mand at  times  higher  rates,  due  to  the  value  of  extra 
service  rendered  ;  and  long-tune  and  other  accommodation 
paper  are  also  at  times  quoted  lower,  in  proportion  to  the 
extension  of  the  credit  feature  involved.3 

3  Transfer  of  gold  in  bars  or  in  coin  is  not  in  actual  use  because  of 
Government  restrictions  so  that  gold  points  do  not  at  present  fix  the 
limits  of  fluctuations  in  exchange.  They  are  mentioned  for  reference 
only,  not  for  any  practical  purpose.  If  gold  is  restored  as  basis  of 
monetary  systems  and  is  allowed  to  move  freely,  the  same  practice 
as  before  the  war  will  govern  exchange  rates. 


INSTRUMENTS  OF  EXCHANGE 

Monetary  exchanges  between  countries  are  made  by 
means  of  (1)  Cable  transfers,  (2)  Government  notes  and 
bank  notes,  (3)  Specie  (gold  and  silver  coin  and  bullion), 
and  (4)  bills  of  exchange  or  drafts. 

CABLE  TRANSFERS  are  immediate  transfers  of  money  by 
cable.  Being  an  extraordinary  service,  rates  for  cable 
transfers  are  usually  above  the  "gold  points." 

GOVERNMENT  NOTES  AND  BANK  NOTES,  of  Govern- 
ments or  banks  enjoying  international  credit,  are  used 
mostly  to  transfer  money  personally.  Very  seldom  are 
they  used  by  other  than  travelers.  They  are  nothing 
more  than  demand  drafts  against  the  issuing  concern, 
involving  extraordinary  risks  in  their  transportation. 
They  are  usually  undervalued  in  foreign  countries  because 
of  these  risks. 

SPECIE,  in  the  form  of  GOLD  COINS,  is  also  handled 
largely  by  travelers.  It  is  exported  and  imported  occa- 
sionally by  banks  and  bankers  as  regular  transfers  of 
money,  specially  when  urgent  demands  are  made  to  fill 
the  vaults  of  some  institution  in  need  of  protecting  its 
reserves.  It  is  also  used  by  exchange  dealers  to  draw 
against  or  in  the  absence  of  other  instruments  of  exchange 
to  satisfy  the  demand  for  money  in  other  countries.  GOLD 
BULLION  is  imported  and  exported  by  bankers,  and  is 

39 


40  Modern  Foreign  Exchange 

available  for  the  same  purposes  as  gold  coins,  there 
being  only  few  days  to  lose  in  minting.  This  feature  is 
taken  into  consideration  and  it  has  a  slightly  lower  value 
than  coined  gold  of  full  weight.  SILVER  BULLION  AND 
COIN  are  commodities  which  are  exported  like  any  other, 
and  are  readily  negotiable  when  not  in  excessive  quanti- 
ties threatening  to  upset  the  normal  conditions  of  the 
market. 

DRAFTS  OR  BILLS  OF  EXCHANGE  are  the  most  usual  of  all 
exchange  instruments  for  the  transfer  of  money  between 
countries,  and  serve  the  most  important  function  in 
international  trade.  They  comprise: 

International  cheques, 

Money  orders, 

Banks  and  bankers'  cheques, 

Sight  and  demand  drafts, 

Short  tune  drafts, 

Long  time  drafts, 

Letters  of  credit. 

INTERNATIONAL  CHEQUES  are  issued  by  banks  and 
bankers  (and  some  express  companies  acting  as  such). 
They  have  fixed  conversion  rates  into  different  moneys. 
They  are  drawn  hi  fixed  amounts  and  are  very  convenient 
for  travelers,  but  little  used  in  trade. 

MONEY  ORDERS  are  issued  by  post  offices  against  similar 
offices  in  other  countries  and  are  used  for  the  transfer  of 
small  amounts.  The  rates  of  exchange  are  fixed  and 
invariable,  not  being  subject  to  any  fluctuation.  Some 
bankers  and  express  companies  issue,  also,  money  orders 


Instruments  of  Exchange  41 

at  fixed  rates,  which  are  as  sight  drafts  for  small  amounts. 
Ordinarily  they  are  for  not  more  than  $100. 

CHEQUES,  DEMAND  DRAFTS,  and  SIGHT  DRAFTS  are 
immediate  payment  orders,  drawn  by  banks  and  bankers 
on  their  correspondents.  Commercial  drafts  are  usually 
drawn  at  short  or  long  time;  very  seldom  at  sight. 

Cheques  and  demand  drafts  differ  from  sight  drafts  in 
that  the  former  have  no  days  of  grace  for  payment  and 
must  be  paid  on  presentation  or  protested.  Internal 
revenue  tax  (stamp  duty)  is  imposed  on  all  foreign  drafts 
in  almost  every  country,  cheques  and  demand  drafts  as 
well  as  sight  drafts  being  either  exempted  or  subject  to  a 
lower  tax. 

Days  of  grace  are  a  privilege  to  defer  payment  for  one  to 
five  days  granted  on  sight,  and  short  or  long  tune  drafts. 

Short  time  drafts  include  all  drafts  drawn  to  be  paid 
from  one  up  to  eight  days  after  sight.  They  are  drawn  by 
bankers  and  merchants  against  balances  or  shipments. 

LONG  TIME  DRAFTS  are  drawn  by  banks,  bankers,  and 
exporting  firms,  usually  at  60  or  90  days  after  sight,  very 
seldom  for  a  longer  time  except  in  special  cases. 

Drafts  are  CLEAN  BILLS  when  having  no  documents 
attached,  and  DOCUMENTARY  BILLS  when  acceptable  or 
payable  only  against  delivery  of  shipping  papers  attached. 
The  attachment  of  documents  does  not  enhance  the  value 
of  the  draft  in  every  case.  The  standing  of  the  drawer  is 
what  counts  hi  first  instance,  as  documentary  bills  are  not 
easily  negotiable  hi  the  open  market  and  they  protect  only 
while  documents  are  attached.  The  acceptance  of  the 


42  Modern  Foreign  Exchange 

drawee  adds  usually  to  the  value  of  the  paper,  especially 
when  the  acceptor  is  a  bank,  a  banker,  or  merchant  of 
good  standing  and  reputation.  Documentary  bills  are 
sold  by  shippers  to  bankers:  they  are  negotiated  between 
bankers  sometimes,  but  merchants  do  not  handle  them 
except  when  acting  temporarily  as  bankers.  Bills  of  lading 
can  not  always  be  disposed  of  freely,  nor  are  goods  covered 
by  same  readily  saleable  unless  in  the  hands  of  the  ultimate 
consignees. 

Financial  bills  are  time  drafts  drawn  against  credit  with 
or  without  guarantee.  They  constitute  the  most  exten- 
sively used  means  of  utilizing  international  credit  and  have 
served  to  develop  immensely  the  production  and  trade  of 
the  world.  Their  use  multiplies  the  amount  of  drafts 
drawn  in  a  country,  as  they  are  covered  at  maturity  by 
remittance  and  again  used  for  the  same  purpose.  They 
afford  the  most  powerful  and  cheapest  means  of  raising 
money  without  actual  employment  of  gold.  The  public 
can  not  know  the  difference  between  an  ordinary  draft 
and  a  financial  bill  except  when  the  authority  to  draw  is 
mentioned  on  the  draft  itself,  which  is  seldom  done.  But 
this  is  immaterial  as  the  guarantee  lies  in  the  RESPONSIBIL- 
ITY OF  THE  DRAWER  and  that  of  the  acceptor  once  the  bill 
has  been  accepted.4 

4  The  war  caused,  as  could  be  expected,  a  great  curtailment  of  com- 
mercial credit,  and  consequently  the  use  of  confirmed  and  unconfirmed 
credits  for  payment  at  places  of  shipment  has  greatly  substituted 
short  and  long  term  drafts  against  shipping  papers. 

American  banks  established  abroad  and  foreign  branches  of  banks 


Instruments  of  Exchange  43 

The  laws  of  all  countries  give  under  certain  conditions  to 
holders  of  drafts  recourse  against  the  drawer  and  all  en- 
dorsers regardless  of  whether  they  have  or  had  documents 
attached  for  acceptance,  except  when  indorsement  has 
been  signed  "without  recourse."  But  a  bill  impaired  by 
this  clause  is  not  openly  negotiable. 

Sometimes  "letters  of  hypothecation"  are  given  to 
accompany  bills  of  lading.  This  gives  authority  to  dispose 
of  the  goods  in  case  of  non-acceptance  or  non-payment  of 
draft  if  papers  or  goods  are  to  be  delivered  only  against 
such  acceptance  or  payment.  In  the  United  States  "trust 
receipts"  are  used  to  protect  drafts  drawn  against  ship- 
ments in  certain  cases,  after  shipping  papers  have  been 
delivered.  This  form  of  security  is  seldom  used  else- 
where. 

Rates  for  time  drafts  depend  on  various  circumstances, 
besides  the  "gold  points"  and  are  fixed  by  the  rating  of 
the  drawer,  the  demand  and  supply  of  the  market  for 

bills,  need,  facility  of  reselling,  etc. 

• 

of  the  United  States  have  developed  the  system  of  extending  letters 
of  credit  on  their  parent  institutions  for  payment  of  goods  against 
shipping  papers,  or  delivery  on  dock,  in  the  United  States,  arranging 
with  buyers  abroad  for  refund  on  or  after  arrival. 

The  use  of  D/P  (documents  against  payment)  drafts  has  also  been 
extended,  granting  buyers,  in  this  form,  time  instead  of  credit  and 
thus  minimizing  risks.  This  system  would  have  been  further  developed 
had  there  been  in  all  countries  convenient  storage  facilities.  The 
proper  care  and  trouble  of  these  transactions  make  them,  of  course, 
more  expensive,  although  buyers  pay  for  interest,  commissions,  stor- 
age, insurance  and  all  other  expenses. 


44  Modern  Foreign  Exchange 

LETTERS  OF  CREDIT  are  the  authority,  given  by  a 
banker  to  draw  on  himself,  or  on  his  correspondent  or 
correspondents,  drafts  at  sight  or  at  time.  They  are  used 
very  extensively  in  financing  foreign  trade,  and  facilitate 
the  movement  of  commodities  by  affording  reliable 
guarantees  to  shippers  and  extraordinary  convenience  to 
buyers.  They  are  issued  for  a  certain  fixed  amount  to  be 
utilized  in  one  block  or  by  fractions  within  a  specified 
time,  against  payment  in  cash  or  a  guarantee  of  payment 
when  drafts  are  presented  for  acceptance  or  payment. 
Usually  bankers  charge  a  commission  for  this  service,  rates 
of  exchange  being  fixed  at  the  time  of  issue  or  as  and  when 
the  drafts  are  presented  for  acceptance  or  payment. 

Letters  of  credit  are  also  issued  for  the  individual  con- 
venience of  travelers.  The  issuer  authorizes  the  holder 
to  draw  on  him  through  any  of  the  correspondents  men- 
tioned in  the  letter  in  one  or  several  places,  or  at  option 
within  a  certain  time.  They  are  issued  against  cash  or 
guarantee  of  payment  on  presentation  of  drafts. 

Securities  (bonds  and  stocks)  are  used,  also,  to  some 
extent  by  bankers  in  transferring  money.  They  are 
usually  represented  by  drafts  drawn  against  them.  Some- 
times, however,  securities  are  sent  without  drafts  and  are 
handled  directly  between  parties  as  a  regular  transfer  of 
money  which  is  obtained  on  the  sale  or  transfer  of  the 
securities  at  destination. 


EXCHANGE  IN  FOREIGN  TRADE 

Every  shipment  of  goods  is  represented  in  one  way  or 
another  by  drafts.  These  are  drawn  either  in  the  money 
of  the  shipping  country,  in  that  of  the  country  of  destina- 
tion or  hi  that  of  one  of  the  international  markets  of  ex- 
change (London,  Paris,  Hamburg,  Antwerp,  New  York, 

etc.). 

Documentary  bills  (or  drafts) — those  to  which  shipping 
papers  are  attached — are  protected  by  liability  of  the 
drawer  and  the  goods  represented  until  accepted  or  paid 
following  the  agreement  between  the  parties. 

Clean  bills  are  protected  by  the  liability  of  the  drawer 
until  accepted,  and  thereafter  by  him  and  the  drawee. 

The  whole  volume  of  the  world's  international  trade  is 
done  through  one  of  these  two  forms  of  "exchange." 
Commercial  letters  of  credit  are  practically  drafts  to  be 
forthcoming. 

Shipments  of  goods  may  not  need  a  draft  to  follow 
immediately.  When  dealing  on  what  is  called  "open 
account"  drafts  are  not  drawn  against  shipments,  but 
some  draft  or  drafts  will  sooner  or  later  be  drawn  to  settle 
the  account. 

Drafts  at  sight  or  at  time  include  or  not,  according  to 
agreement  between  parties,  interest,  expenses  of  collection 
and  exchange. 

45 


46  Modern  Foreign  Exchange 

To  fix  rates  for  the  negotiation  of  drafts,  the  time  to  run, 
the  distance,  and  the  mode  of  payment  are  considered. 

Theoretically  the  "gold  point"  (the  limit  above  and 
below  par  at  which  gold  can  be  exported  or  imported) 
fixes  the  maximum  and  minimum  points  of  fluctuation,  hi 
exchange  rates.  But  in  practice  there  are  other  factors 
taken  into  account. 

Not  everybody  can  sell  drafts,  not  even  if  against 
money  in  deposit  or  against  a  shipment  of  goods.  A 
buyer  of  the  draft  is  needed,  and  to  secure  same  the  seller 
must  have  a  commercial  standing.  Any  bank  will  take  a 
draft  for  collection,  but  may  not  be  willing  to  advance  the 
money  (buy  it).  The  standing  of  the  drawer,  as  well  as 
that  of  the  drawee,  must  be  considered.  When  assuming 
extra  risks  buyers  often  pass  gold  point  limits. 

Then,  there  are  many  countries  on  which  drafts  are  not 
easily  negotiable,  because  there  is  no  demand  for  ex- 
change on  them.  As  an  investment  ordinary  rates  may 
not  satisfy  and  extra  inducements  are.  necessary.  These 
extra  inducements  cause  rates  to  pass  gold  point  limits. 
While  rates  of  exchange  on  countries  with  which  the 
United  States  maintains  active  trade,  to  and  from  which 
there  is  frequent  and  easy  communication,  and  where 
commercial  paper  is  easily  rediscounted,  are  close  to  the 
gold  points,  they  are  much  beyond  or  below  these  points 
when  dealing  with  places  where  the  requirements  of  trade 
do  not  call  for,  nor  is  there,  facility  to  dispose  of  bills. 

Countries  shipping  raw  materials  to  the  United  States 
usually  draw  against  bills  of  lading,  when  not  in  advance, 


Exchange  in  Foreign  Trade  47 

there  being  infrequent  need  for  direct  exchange  to  pay  for 
same.  Bills  on  these  countries  are  negotiated  as  invest- 
ment, the  money  usually  being  tied  up  until  remittance, 
after  collection,  is  received. 

Long  time  paper  on  London,  Paris  or  Hamburg,  or 
other  money  markets,  whether  documentary  or  clean  bills, 
can,  as  a  rule,  be  sold  easily  at  convenient  rates,  there 
being  a  constant  demand  for  it.  While  drafts  on  the 
Philippine  Islands,  South  American  and  other  countries, 
on  which  there  is  no  demand  for  exchange,  may  be  ne- 
gotiated as  investment  (or  loan)  only.  Gold  points  are 
not  necessarily  the  factors  for  limiting  fluctuation  in  this 
case.  A  large  portion  of  the  drafts  on  countries  on  which 
there  is  no  demand  for  exchange,  are  drawn  in  Pounds, 
Marks,  or  Francs,  payable  in  local  currency  at  the  col- 
lecting bank's  selling  rate  for  sight  or  time  drafts  on  Lon- 
don, Paris  or  Hamburg.  They  are  in  fact  drafts  on  these 
markets  receivable  in  a  future  period.5 

6  Gold  points  do  not  exist  at  present  but  the  reasons  for  discriminat- 
ing against  places  other  than  money-markets  persists.  Furthermore, 
the  negotiation  of  drafts,  on  many  of  these  countries,  as  Australia, 
South  Africa,  and  other  British  possessions  where  exchange  was  usually 
readjusted  by  London  exchange  has  become  more  difficult.  Drafts  on 
Australia  in  Sterling  meant  in  the  end  drafts  on  London  for  future  de- 
livery, as  settlement  was  made  in  that  way.  Limits  of  London  Ex- 
change for  futures  were  well  known  in  the  United  States,  and  it  was  a 
matter  of  time  but  not  an  exchange  risk.  A  90  days'  sight  draft  on 
Sydney  required  about  75  days'  travel  or  in  all  165  days'  delay:  it  could 
be  considered  a  draft  for  future  delivery  after  5>2  months.  But  it  was 
possible  to  know  53^  months  in  advance  what  the  rate  would  be,  or 


48  Modern  Foreign  Exchange 

Finally,  the  certainty  of  obtaining  actual  gold  is  a  factor 
of  immense  importance.  Theoretically  the  majority  of 
countries  are  on  a  gold  basis,  that  is,  their  different 
forms  of  money  are  convertible  into  gold  on  demand.  But 
in  practice  gold  is  only  obtainable  when  conditions  of  the 
markets  are  normal.  England  claims  to  be  the  only  coun- 
try where  gold  is  obtainable  always,  and  still  by  Act  of 
Parliament  the  Bank  of  England  has  been  authorized  to 
suspend  specie  payments  more  than  once.  The  Bank  of 
France  is  permitted  to  redeem  its  notes  with  silver  when 
so  desired,  and  has  taken  advantage  of  this  privilege  more 
than  once.  Several  European  central  banks  also  have 
raised  obstacles  hi  the  way  of  redeeming  their  notes  hi  gold 
at  times. 

Financial  stress  does  not  regularly  prevail,  but  when  it 
exists  gold  points  become  merely  theoretical.6 

All  tables  in  this  book  refer  to  normal  times  when 
gold  is  readily  obtainable. 

From  the  United  States  drafts  are  drawn  hi  dollars, 
pounds  sterling,  francs,  marks,  lure,  and  gulden,  very 
seldom  are  any  other  gold  standard  or  gold  exchange 
at  least  the  minimum  cost  (gold  point).  At  present  no  one  can  tell 
what  exchange  might  be  after  5^  months  as  there  is  no  limit  to  fluctua- 
tions. Drawing  in  dollars  would  be  the  answer,  but  this  protects  the 
American  exporter  only,  the  foreign  buyer  is  at  a  loss  to  know  how 
much  he  may  have  to  pay  even  in  a  near  future,  in  his  money  for 
exchange  on  the  United  States  and  of  course,  the  fear  forces  him  to 
restrict  his  purchases  to  almost  what  he  cannot  help  buying. 

6  This  statement  has  been  confirmed  by  actual  experience  since  the 
outbreak  of  the  war,  and  there  is  at  present  no  other  country  except 
the  United  States  where  gold  is  freely  available. 


Exchange  in  Foreign  Trade  49 

standard  units  used.  Such  drafts  are  payable,  at  sight  or 
at  time,  usually  60  or  90  days  after  sight  (or  date)  against 
shipping  papers  to  be  delivered  upon  acceptance  or  pay- 
ment, in  local  currency  at  the  collecting  bank's  selling 
rate  for  drafts.  While  London  was  the  center  of  financial 
clearings  a  large  portion  of  our  drafts  were  drawn  in 
pounds  sterling  payable  at  the  local  rate  for  bills  on 
that  market. 

All  drafts  drawn  hi  other  than  the  money  of  the  place 
of  payment  should  stipulate  "  payable  in  local  currency  at 
the  collecting  bank's  selling  rate  for  (sight  or  time)  drafts," 
according  to  agreement  prevailing.  Otherwise  disputes 
may  arise  as  to  how  such  drafts  are  payable.  There  being 
no  official  rates,  quotations  of  different  banks  may  lead  to 
confusion.7 

When  selling  goods  in  dollars  and  drawing  in  pounds 

7  It  has  been  a  very  undesirable  practice  to  write  on  the  face  of  some 
drafts  on  foreign  countries  the  following  words  "to  be  presented  on 
arrival  of  goods"  or  to  instruct  collecting  banks  to  present  drafts  for 
acceptance  (or  payment)  on  such  arrival.  When  agreeing  to  those 
terms  with  buyers,  sellers  probably  did  not  realize  that  by  deferring 
acceptance  (or  payment)  until  arrival  of  goods,  they  automatically 
changed  the  terms  of  sale  from  C.  I.  F.  destination  or  F.  O.  B.  port  of 
shipment  to  F.  0.  B.  port  of  destination,  actually  guaranteeing  arrival. 

In  many  cases,  also,  sellers  agreed  to  allow  buyers  (or  their  agents) 
to  examine  goods  before  acceptance  (or  payment).  This  subordinated 
the  acceptance  (or  payment)  to  the  buyer's  approval  (or  caprice). 

Any  drafts  subject  to  conditions  more  or  less  uncertain  are  impaired 
and  treated  accordingly.  Banks,  as  a  rule,  will  accept  them  for  col- 
lection only. 


50  Modern  Foreign  Exchange 

sterling  or  other  foreign  money  it  is  customary  to  agree 
with  the  customer  either  on  a  fixed  rate  of  conversion  or 
on  one  to  be  fixed  by  the  purchasing  bank  in  the  United 
States. 

A  draft  on  any  place  other  than  London,  drawn  hi 
pounds  sterling,  payable  90  days  after  acceptance  would 
be  rated  approximately  as  follows  (considering  time  dis- 
tance thirty  days  one  way) : 

If  at  sight          If  at 
rate       90  days'  rate 

Exchange  on  London $4.86  $4.80 

Discount,  150  days  (30  days  to  go,  90  to  run, 

and  30  to  return),  at  6% 12J3  12 


$4.73^        $4.68 
Collection  charges 03^  .03 

$4.70  $4.65 

(These  figures  refer  to  pre-war  conditions.) 
They  are  obsolete  and  are  given  only  as  examples. 

The  difference,  between  90  day  paper  and  sight  drafts,  is 
based  on  the  prevailing  rate  of  discount  in  London. 

In  this  case  the  "dollars"  would  be  converted  into 
pounds  at  $4.70  if  payable  at  the  rate  of  London  bills  at 
sight,  or  $4.65  if  payable  at  the  rate  of  90  day  paper,  the 
drawer  receiving  the  full  amount  of  his  invoice  against 
the  draft.  Interest  and  other  charges  would  be  borne  by 
the  drawee,  who  would  pay  them  in  paying  more  pounds 
sterling.  For  instance,  a  shipment  for  $4,700  converted 
at  $4.70  would  require  a  draft  for  £1,000  which  the  buyer 


Exchange  in  Foreign  Trade  51 

• 
would  pay  in  currency  at  the  collecting  bank's  rate  for 

sight  drafts  on  London.  But  $4,700  is  not  £1,000;  at  par 
it  is  £965.15.6,  and  when  paying  £34.4.6  MORE,  the  cus- 
tomer is  simply  covering  interest  and  collecting  commis- 
sion. Interest  is  about  $1 17.50,  the  balance  of  $48.50  being 
the  bank's  profit.  Of  course  when  drafts  are  drawn  "plus 
interest  and  other  charges  "  no  discount  is  made  at  this  end. 
The  number  of  days  charged  for,  when  discounting  a 
draft,  is  usually  a  trifle  more  than  actually  required.  The 
reason  for  this  is  the  uncertainty  regarding  the  arrival  of 
mails.  Drafts  acceptable  only  on  arrival  of  goods  which 
does  not  always  occur  simultaneously  with  the  receipt  of 
the  correspondence  can  have  no  known  time  for  returns. 
They  are  difficult  to  negotiate.  No  refund  is  made  for 
fewer  days  transpired,  but,  usually  a  charge  is  made  when 
allotted  time  has  been  exceeded. 

Profits  in  exchange  stimulate  the  business  of  buying 
drafts  and  afford  the  means  of  developing  trade  under  the 
most  convenient  conditions.  Shippers  receive  promptly 
the  value  of  their  invoices  and  buyers  obtain  time  to  pay 
for  them.  The  nominal  commission  charged  for  collecting 
drafts,  alone,  would  not  induce  the  banks  to  enter  into  the 
transaction. 

Commercial  letters  of  credit  are  extensively  used  in 
connection  with  foreign  trade,  shippers  being  authorized 
to  draw  on  American  bankers  or  bankers  in  other  coun- 
tries, against  shipping  papers  to  be  delivered,  against 
payment  or  acceptance  of  bills.  Buyers  settle  with  their 
bankers  for  delivery  of  shipping  papers  at  destination, 


52  Modern  Foreign  Exchange 

against  payment  or  " trust  receipts7'  for  goods  shipped,  or 
other  guarantee  or  without  guarantee. 

Rates  of  exchange  affect  trade,  especially  when  dealing 
with  large  shipments  of  grain  or  other  raw  materials  for 
which  drafts  are  drawn  in  foreign  money.  The  American 
exporter  expects  to  receive  American  money  for  his  ship- 
ment, and  the  better  rate  of  conversion  he  can  secure  the 
better  price  he  can  make.  In  large  transactions  very  small 
percentages  are  often  decisive  and  may  either  secure  orders 
or  stand  in  their  way. 

Sometimes  the  difference  in  exchange  is  the  only  profit 
made  in  a  large  transaction,  and  while  it  may  secure  such 
profit  only  to  the  foreign  customer  yet  the  sale  and  export 
of  the  goods  is  made. 

The  rate  of  'exchange  is  not  so  much  a  factor  in  the  price 
of  manufactured  goods  as  it  is  in  raw  materials  or  semi- 
manufactured articles.  Anyhow,  better  rates  of  conver- 
sion may  slightly  benefit  the  buyer  and  should  not  be  dis- 
regarded. 

London  is  still  the  largest,  if  not  practically  the  only, 
open  market  for  rediscount  of  drafts  for  all  the  world. 
Therefore,  the  rate  of  interest  prevailing  there  influences 
the  rates  of  exchange  everywhere.  When  the  rate  in  the 
open  market  is  4%,  drafts  on  London  obtain  better  prices 
here  than  when  such  rate  is  higher.  A  draft  for  £1,000  at 
90  days'  sight  discounted  at  4%  (93  days  considering  the 
three  days  of  grace  which  are  always  counted)  obtains 
£989.16.2,  while  if-  the  rate  of  discount  is  6%  it  would 
only  obtain  £984.14.3.  A  bank  in  the  United  States,  in 


Exchange  in  Foreign  Trade  53 

making  its  rates  for  purchase,  would  take  into  considera- 
tion the  difference  and  would  pay  about  $25  less  for  the 
£1,000  in  the  second  case.8 

This  and  " arbitrage"  operating  is  followed  more 
closely  by  exchange  dealers  and  speculators  than  by  ex- 
porters. But  these  must  follow  the  domestic  market  for 
foreign  exchange,  as  the  greater  efficiency  is  likely  to 
assist  and  improve  their  business. 

Bankers  contract  for  exchange  in  advance  and  it  is 
very  convenient  to  secure  a  rate  before  quoting  in  foreign 
money  for  large  shipments.  As  a  rule,  the  most  satis- 
factory results  are  obtained. 

A  quotation  for  coal  to  Brazil  payable  by  a  draft  drawn 
to  be  settled  with  90  day  paper  on  London  can  be  made  a 
few  cents  less  per  ton  if  a  better  rate  is  secured.  If  a 
conversion  rate  of  i$4.70  per  £1  for  a  shipload  worth 
$47,000  is  secured,  a  draft  for  £10,000  would  have  to  be 
drawn.  If  only  a  rate  of  $4.65  can  be  obtained  the  draft 
would  have  to  be  made  for  £10,107.10.6.  The  difference 
of  £107.10.6,  slightly  over  1%,  saved  in  the  first  case  would 
either  lessen  the  cost  to  the  buyer,  or  add  to  the  profit  of 
the  shipper,  but  it  might  be  just  enough  to  secure  the 
order. 

Protecting  the  interest  of  foreign  customers  is  a  very 

8  The  establishment  of  the  Federal  Reserve  System,  granting  mem- 
ber banks  the  privilege  of  accepting  drafts  against  actual  transactions 
in  domestic  or  foreign  trade,  and  the  facility  of  rediscounting  such 
acceptances  with  the  Federal  Reserve  Banks  has  created  discount 
markets  in  the  principal  cities  of  the  United  States. 


54  Modern  Foreign  Exchange 

good  policy  as  it  tends  to  promote  better  relations  and 
increased  trade  is  the  consequence.  And  it  demands  very 
little  extra  attention  from  the  American  exporter. 

Quoting  and  selling  goods  in  foreign  countries  in  their 
money  is  being  adopted  as  a  further  convenience  to  buy- 
ers. Financing  shipments  in  this  form  is  more  attractive 
to  banks  and  bankers  in  the  United  States,  since  it  affords 
more  profits  to  them.  Therefore,  there  is  a  natural  tend- 
ency to  encourage  it. 

Exchange  profits  on  drafts  drawn  hi  DOLLARS  usually,  if 
not  always,  accrue  to  foreign  banks  undertaking  the  collec- 
tion. These  will  earn  such  profits  on  converting  the 
DOLLARS  into  local  currency  at  the  time  of  collection,  by 
charging  the  payee  THEIR  RATE  for  selling  drafts.  Their 
provision  of  funds  abroad  is  made  at  lower  rates  when 
buying  drafts  on  the  market.  The  American  bank  dis- 
counting (advancing  the  money)  a  draft  drawn  in  dollars 
on  a  foreign  country,  will  only  earn  interest  for  the  tune  its 
money  is  invested,  and  sometimes  a  nominal  commission 
a  part  of  which  goes  to  the  foreign  collecting  bank. 

But  when  drafts  are  drawn  in  the  currency  of  the  place 
of  payment  the  American  bank  will  make  a  profit  in  ex- 
change and  the  foreign  bank  undertaking  the  collection  will 
earn  a  small  commission  for  its  services  as  well  as  exchange 
profit  hi  converting  proceeds  into  foreign  money.  Drafts 
drawn  in  other  than  dollars  or  the  money  of  the  place  of 
payment  afford  exchange  profits  for  both — the  discounting 
(or  purchasing)  and  the  collecting  bank. 

It  is  to  the  interest  of  American  business  people  to 


Exchange  in  Foreign  Trade  55 

retain  the  largest  possible  portion  of  exchange  profits  at 
home,  drawing  hi  other  than  dollars.  But,  of  course,  this 
can  only  be  done  after  agreement  with  buyers. 

Although  foreign  customers  may  obtain  sometimes  an 
advantage  on  converting  into  their  currency,  at  the  tune  of 
payment,  drafts  drawn  on  them  hi  foreign  money,  they 
prefer  as  a  rule  to  be  safe  and  to  contract  in  their  money. 
There  is  no  extra  charge  against  them  when  exchange 
profits  are  retained  in  the  United  States.  Nor  do  they 
benefit  if  these  are  left  to  the  advantage  of  banks  located 
in  then1  cities.  But  it  certainly  is  a  convenience  not  to 
have  an  uncertain  rate  of  exchange  to  consider  when  doing 
business. 

Sales  can  not  be  made  safely  hi  foreign  money,  except 
with  countries  on  a  gold  basis  or  with  those  using  a  cur- 
rency so  guaranteed  as  to  run  practically  no  risk. 

Conversion  of  American  money,  in  this  case,  is  safely 
done  by  taking  the  "minimum"  possible  rate  of  exchange 
from  the  United  States  which  is  the  "maximum"  from 
the  country  to  be  considered. 

There  is  no  country  at  present  under  the  gold  standard 
or  the  gold  exchange  standard  and  gold  is  not  available 
anywhere.  When  gold  is  restored,  if  it  is  restored  one  day, 
the  same  system  would  again  govern  foreign  exchange. 

Quoting  and  selling  in  foreign  money  is  greatly  handi- 
capped because  of  the  uncertainty  of  exchange  rates  at 
this  time  when  the  absence  of  gold  points  has  left  fluc- 
tuations unlimited.  Artificial  means  put  in  operation  to 
control  or  limit  rates  of  exchange  have  succeeded  only  for 


56  Modern  Foreign  Exchange 

a  time  and  to  a  certain  extent.  They  could  not  be  main- 
tained indefinitely. 

To  sell  (or  to  buy)  goods  in  terms  of  foreign  money, 
it  is  necessary  at  present  to  negotiate  for  the  exchange 
beforehand,  assuming  the  conversion  of  the  foreign  money 
into  dollars  or  vice  versa  at  a  fixed  rate. 

Many  banks  hi  the  United  States  offer  this  service  at 
present,  and  it  is  a  great  help  to  both  the  foreign  and  the 
domestic  merchant. 

BUYING  AND  SELLING  "FUTURES" 

Buying  and  selling  "futures"  (exchange  for  future  de- 
livery) is  done  at  present,  although  hi  a  limited  way. 

Some  people  consider  this  a  speculation  because  it  is  not 
based  on  any  certain  factors,  but  it  is  no  more  than  a  pro- 
tection for  both,  buyers  and  sellers,  covering  an  uncer- 
tainty so  detrimental  to  commerce. 

A  manufacturer  who  buys  raw  material  in  advance 
protects  himself  against  uncertain  prices,  and  becomes 
able  to  sell  for  future  delivery,  covering  his  uncertain 
position.  A  merchant  who  buys  merchandise  in  advance 
protects  himself  against  uncertain  prices  also,  and  be- 
comes able  to  sell,  in  turn,  for  future  delivery,  covering  his 
uncertain  position.  An  importer  buying  future  exchange 
to  protect  himself  against  uncertain  rates  becomes  able  to 
sell  his  goods  for  future  delivery,  in  terms  of  American 
money  without  any  risk.  An  exporter  who  sells  his  future 
exchange  protects  his  buyer  who  can  know  exactly  what 
the  goods  will  cost  him  in  his  money.  In  this  way  goods 
can  be  sold  in  terms  of  foreign  money  without  any  risk  to 
the  exporter  and  to  the  advantage  of  the  foreign  buyer. 


Exchange  in  Foreign  Trade  57 

The  same  can  be  done,  and  is  done  in  foreign  countries 
where  buyers  can  secure  from  their  banks  foreign  exchange 
for  future  delivery  at  fixed  rates,  covering  themselves 
against  fluctuations. 

None  of  these  can  be  considered  as  speculators.  On  the 
contrary,  they  would  be  helping  to  stabilize  rates,  and 
unconsciously  assisting  to  restore  normality  to  trade. 

Europe  is  not  bankrupt  in  spite  of  the  heavy  load  its 
people  have  to  carry  for  wastage  of  the  War.  So  long  as 
the  land  exists,  that  it  can  produce  and  that  its  people 
work,  there  will  always  be  trade  for  all.  If  exchanges  were 
stabilized,  even  if  only  within  reasonable  fluctuations, 
many  of  its  industries  would  add  to  the  production  by  the 
converting  of  raw  material  which  must  be  purchased 
abroad.  Time  to  recover  is  needed  more  than  actual  new 
foreign  capital.  Economic  readjustment  can  not  be  made 
overnight,  and  if  the  people  will  work  patiently  and  with 
confidence  in  their  own  future  many  years  will  not  have  to 
transpire  before  the  world  will  be  on  its  feet  again,  produc- 
ing and  consuming  more  than  before  the  War. 

The  uncertainty  of  exchange  rates  is  doing  more  harm 
than  is  apparent.  It  is  discouraging  trade  and  work,  and 
is  delaying  the  period  of  real  recovery.  Anything  that 
may  be  done  to  prevent  violent  fluctuations  will  be  of 
great  assistance. 

Buying  and  selling  " futures"  is  a  remedy,  even  if  only 
temporary.  By  pushing  ahead  for  a  few  months  and 
stabilizing  rates  of  exchange  for  that  short  period,  much 
will  be  gained  with  loss  to  nobody.  During  each  succeed- 
ing period  of  a  few  months  Europe  will  recover  a  little 
more,  and  what  may  seem  a  temporary  relief  may  be 
turned  later  into  a  permanent  measure  towards  definite 
stability. 


ARBITRAGE 

Arbitrage  is  the  simultaneous  negotiation  of  exchange 
between  three  or  more  different  money  markets. 

International  trade  and  financial  transactions  cause 
movements  in  exchange  which  do  not  follow,  as  a  rule,  the 
same  course  in  all  markets  at  a  given  moment.  These 
movements  afford  opportunity  for  earning  profits  in  the 
transfer  of  money  from  some  places  to  others.  This  is 
done  by  cable  and  by  drafts,  with  the  object  of  taking 
advantage  of  the  differential  rates  in  the  various  markets. 

For  instance,  New  York  bankers  will  draw  on  London 
and  cover  by  remittance  on  Berlin,  ordering  the  transfer 
of  funds  from  this  city  to  London  direct  or  through  Paris, 
Antwerp,  Amsterdam,  or  another  market  where  exchange 
could  be  bought  at  a  profit. 

Fluctuations  occur  through  rise  and  fall  of  interest 
rates  in  one  or  more  of  the  money  markets,  used  in  these 
transactions.  However,  the  profit  arising  from  differential 
rates  is  reduced  to  such  a  small  percentage  that  it  is 
negligible  to  those  not  carrying  on  a  very  large  business  in 
this  line. 

One  pound  sterling  is  equivalent  at  par  to  $4.86656 
American  money,  and  to  Francs  25.22154,  and  the  Franc 
in  New  York  is  worth  $0.19295,  at  par  also.  Fluctuation 
limits  between  England,  France,  and  the  United  States 

58 


Arbitrage  59 

were  very  close  to  their  "gold  points";  but  the  supply 
of,  and  the  demand  for  exchange,  as  well  as  the  interest 
rates  were  not  always  the  same  in  the  three  countries,  and 
the  same  proportional  rating  was  not  always  maintained. 

If  a  New  York  banker  sells  a  sight  draft  on  London  for 
£1,000  at  $4.60  he  will  obtain  $4,600,  and  if  he  invests 
this  amount  in  Paris  exchange  at  $0.16  per  franc  he  will 
secure  a  draft  for  francs  28,750.  Should  he  instruct  his 
Paris  correspondent  to  buy  with  this  amount  exchange  on 
London  and  this  is  done  at  the  rate  of  Fes.  30  per  pound 
sterling  a  remittance  of  £1,010.10.10  would  be  made  to  the 
London  correspondent  of  the  New  York  banker,  closing 
the  transaction  with  a  profit  of  only  £10.10.10  or  $48.49. 
This  profit  is  apparently  very  small,  but  as  these  transac- 
tions are  done  several  times  a  day,  and  involve  many 
hundreds  of  thousands  of  pounds,  they  become,  in  the 
end,  a  source  of  large  profits  to  bankers  engaged  in  this 
class  of  business. 

The  figures  mentioned  are  set  forth  merely  as  an  exam- 
ple, and  do  not  refer  to  any  given  case.  Usually  margins 
of  profit  are  very  much  smaller  than  the  one  quoted. 

Arbitrage  is  transacted  through  cable  transfers  as  well  as 
through  commercial  and  financial  bills,  or  against  recip- 
rocal credits.  In  fact,  hi  one  sense  it  is  frequently  em- 
ployed for  the  purpose  of  international  "kiting"  on  a 
large  scale,  and  is  carried  on  as  much  for  trade  conven- 
iences, as  for  credit  operating  and  speculation. 

Merchants  and  exporters  very  seldom  depart  from 
their  own  lines  hi  this  regard.  When  they  wish  to  remit 


60  Modern  Foreign  Exchange 

to  Paris  they  buy  a  draft  on  Paris,  without  looking  for  an 
advantage  in  exchange  going  via  London  or  another 
market.  And  when  they  have  a  draft  on  London  to  sell 
they  sell  it  outright  in  New  York  (or  at  their  place  of 
business)  without  seeking  to  make  a  profit  by  sending  it 
to  Hamburg  or  another  place  to  convert  into  American 
money  or  to  have  a  balance  to  draw  against.  When  they 
do  so  they  become  temporarily  bankers  and  assume  the 
inherent  risks. 

Exporters  who  dispose  of  drafts  and  take  their  bank's 
rate  without  further  investigation,  and  importers  buying 
exchange  at  rates  fixed  by  their  bankers,  afford  abundant 
material  for  this  business.  The  individual  transactions 
of  each  are  not  worth,  as  a  rule,  any  more  trouble,  but 
taken  in  the  aggregate  they  represent  huge  amounts  and 
provide  for  a  good  part  of  bankers'  and  exchange  dealers' 
earnings  in  this  line.  Arbitrage  profits  are  kept  down  by 
natural  competition,  they  are  perfectly  legitimate,  and 
are  honestly  earned.  Against  them  the  banks  and  bankers 
offer  the  inestimable  service  of  credit  extended  to  almost 
every  merchant  of  good  repute,  when  buying  their  drafts 
protected  or  not  by  shipping  papers. 

Securities  are  used  to  a  certain  extent  in  the  arbitrage 
of  exchange  yielding  profit  not  only  on  exchange  rates  but 
also  in  the  matter  of  price  as  quoted  in  the  different 
markets.  But  this  would  rather  come  under  "  stock 
arbitrage"  than  within  money  exchange  transactions. 


Table  of  Moneys  in  Actual  Use 


61 


II 


§ « 


S    § 


h 

55    S 

W    ° 

S  a 


•    «    » 

TO     CT   . 


§ 


ll 

Q  O 


I 

o   o   o   o   o        o 

88888     8 


.5 


MI 


«3      . 
*3      • 

g.?-0 


123-S 

O  ^   -P    $3 

£   >  v  S  'C   o 

g  '-§  I  *a  «  w 


n 

ti 

£  -S 

w  o 


S  -g 

QJ      fi 

02  ^ 
•P 

5| 

02  ^ 


§3 


II 

<  « 


OQ      OD      OQ      QQ      OQ 


O 


62 


Modern  Foreign  Exchange 


CO  CO 


h 

u,  *  §388888818888883388888 

J°j      dddddddddddddddddddddd 

"8 

;  \si  ^  is  i  * 

&  0X2 

O  *§-§'•  S  "  "      '  '^ "         ~      •    6      i    d   43    £    P 

t^  CO      O      <D      O    ^O      S     w     V     V     O     V     O     w     O     V     W    ^8    »£H      O      CD      O 

^  WUPHPH^^PHPHPHWPHPHPHPHPHPHPQr^UPHPQ 

toto*oto'o*oto'ototoeo'ototStotootototo"o"o 

§§I§§|§|||§§§§|||88888 
::!!:::::::::::::::::  ^ 

'.!!!!!!!     I     !!!!!!!     I     !!!!  ^ 

:::::::::::::::::::::  do 

H 

« 

d 

o 

i  I          :::|:::       :   :   :   :   :   ;    :   :  | 

as      jaai!     i^iJil  4* 

a  o      ®'-^'-^^c3         B-SpaS-^ipv 

fli|i!ll|lll!l!! 

PH^iS^PHW<1<lW«OUOOPHPPH.HO^>fe 

!!!!'.!!'.!'.     !     !     !     !     1  ^  ^/T  {^    •     I     I 

'02'  'OTV  'oo'  /QQS  X02N  'o?  'o?  '^   O2O20202QQ0202__Q  so^/  ^co^  ^02^  ^02^ 

oppoppppooooooo.§.§.§ooo^ 

I I I I II I I | I j I | | | I I I | I I I 

BSfltiflc]fi3ddtidddc3c]£9cid€idc|c3 

O0^CJOOQ^Q^OQ^OQ^Q^OO^Q^OQ^OO<l^C? 

OOQOUUOUOOOOOOOOOUUOOO 


Table  of  Moneys  in  Actual  Use 


63 


2  g 


CO   l^. 

co  OQ 


O  * 

^?   ^D  C2  CO   ^D   O^   ^^    ^^ 

pp2$^p»-ipp 
ododrHodi-! 


O   OO 

t>»  o^ 

8§£: 


§8^ 

O  Q  Q 


i-HCIOOi-HOOOOOoOO 


SB  •,•••• 


•       Q) 

•    § 


0)     03 

J.i 


sss 


^  — 

:'S 

*   c 

i 

o 

53  'C  9 
SS^  fi 

fe    PH    P&4    fe 


S     «    "W 

oww 


64 


Modern  Foreign  Exchange 


B  I 

H  i 

s  * 


:  5 


OQ         •        •     B     M    ' — " 

^  ^  -3.  A  -£  -° 

II  § 


a  fl  S  ~ 
88 


ifl 


jql 

111 


Table  of  Moneys  in  Actual  Use  65 

IH 

^  §      oc38c2       Si  o  d>  K  ^  <N 

g  £  o^«NTt*^Tt<_ioco 

S38;8 

dodo       00000^000000000^0 
p     ^ 

!    '.       IS-* 
| 

§-•-  •••C  •••••k-' 

Q.S^H'S  fl  QQCQQQ2flAir*rniinfT*lT^fr*rir*mfin'^ 

till    i     § >  >l >  > 

S       PH?3g^      ^^-^Jj|jJ 

O^«*HO       ««-i£3§§§§§§§§§a}§§§§o 

|||l  §.8iS8888§§8§SS§85 

B 

|g * 

8       :       i     .£ 

-  • S  •  ^  ::::::       :    :  s-j 

12       slM  •  !  :  i         :m 

I»M 

lililll-illlilllillllj! 

_  s 

-        -         -         <  "  •    '  flV 

^    5>          ^*  'Z?  .  - 

o3 

^      J^  Vl       fl*     v5, 

3      fl  Q. 

g  §    & 


66 


Modern  Foreign  Exchange 


CO   CO   *O   1s-   Oi  COt^CNOQ^fdOOOiCD          Tfl   Tt*   »"H 

M  S    "^  '^  GO  ^P  ^D    CO  Tt*  O5  ^D  ^5  ^5  CQ  <O  *H    CS1  C1^  ^H 
j   •    O1  ^^  4s*  ^5  ^5    00  O5  CO  C^  C5  ^P  Is*  *^  ^O    CO  CO  CO 

^°!          QOOOO          ^TjHTjHOOOOOO         OOOOOO 

i      ^    i  M  i 

-d 

§        I  N  :    :  .2 .2 . 

n'  '   '  .-3  a - 

bb     g 

S         W       • I   -   b 

««e§flca»      aggooeg^ft      "S^^H^^ 

:     :     :     :     775     :     :     :     :     :     :     :     :     r~p     :     :     :     :     :     : 
a oj 

n     5          MI  i- 

<•£ hH 

:::  ::|  ::;:::::  :]l  :::::: 

<D ,Q 

::::-:  ^    :::::::::  s 

*        .....  w .g 

5 

t> 

o 

O 

«3  :'*::':  :^     -s 

ll  -:  .^  :  II 

.s   :     3 «   :       ;  . w  rS 

^>T~)      .          T^fli.-^c^bD         f_,o_lc3'-ii_i  »*  _i 

•3   g   I  'I  -2   §  .2  d   -   * 
j*-»-a-»;H  e  Bfl  8-B  J^  B-l  t«q 

i     T  :    :    :    :    ;       :    : 

H  ff       I  1 

•  '-S      SI'S 

»  '      •      •  J         :Bl 

S3vSl-02       WHggg  -^      'S^'S1 

iii?3i  iiffii.li  ii 

.2  .2  .2  .2  .2  o        oo  55  S  S  .S  .9  o  3        s  s 

PH  PH  P_i  PH  P-i  P-i         |£|{3kffiMMMMffiM         P^Pn 


Table  of  Moneys  in  Actual  Use 


67 


LUE  IN 
.  MONEY 

CO    CO 

N  ^ 

* 

o  S  -^  t» 

*     * 
C^  ^^  t^* 

* 

00   l> 

—  -     1  - 
Tf     t^ 

t> 

a° 

O  0  O  0 

O  O  O 

O  0 

DIVISION 

II 

>Cents  
/lOOof  Lev  
00  Centavos  .... 
OOBese  

T.       fj 
J    r^     "§ 

PQ  O  02 

888 

00  Sen..  !  
00  Cents.. 

• 

• 

;      • 

.    .    .    . 

•     •     • 

!    ; 

•B 

P 

.    .    .    . 

:  •§    : 

•    • 

o> 

.    .    .    . 

;  «*^    ; 

i 

CD 
T3 

;   o     \ 

j 

a 

IB 

£3    § 
t-3  Qu 

3        •  * 

1111 
f-rii 

£  «  W  <5 

Eritrea.  . 
Northeast 
Siam  .... 

II 

•  • 

.     .    .     . 

•  o    . 

.  f* 

•  Jz      • 

• 

'  IH 

* 

02  02* 

JS 
65 

•3  s  §g 

02  02  02  H 

si 

§1- 

3  ^    g 
3SP 

§| 

68  Modern  Foreign  Exchange 


NAMES  OF  SOME  COINS,  USED  AT  TIMES  IN  BUSINESS 

Alexander Bulgaria 20  Leva $3 . 85900 

Alfonsino Spain 25  Pesetas 4.82375 

Centen Cuba 25  Pesetas 4.82375 

Condor Ecuador 10  Sucres 4 . 86656 

Coroa Portugal 10  Milreis 10 . 80460 

Crown United  Kingdom ...        5  Shillings 1 .21666 

Ducat Netherlands 5.70  Gulden 2.28267 

Ducat Austria 11.29  Kronen 2.28792 

Eagle United  States 10  Dollars 10. 

Farthing United  Kingdom ...      ^  Penny 0.00507 

Florin United  Kingdom ...        2  Shillings 0.48666 

Half-Crown. .  .United  Kingdom.  ..  2  Shillings  and  6  Pence ..  0.60833 

Imperial Russia 15  Roubles 7.71839 

Krone Germany 10  Marks 2.38209 

Louis France 20  Francs 3.85900 

Luis Cuba 20  Francs 3.85900 

Medjidie Turkey 20  Piastres 0.86928 

Napoleon France 20  Francs 3.85900 

Soldo  (i) Italy 5  Centesimi 0.00964 

Sou  (s) France 5  Centimes 0.00964 

Sovereign United  Kingdom ...        1  Pound  Sterling 4.86656 

Tcherek Turkey 5  Piastres 0.21732 


NAMES  OF  SOME  QUANTITIES  OF  MONEY  REFERRED  TO 

IN  TRADE 

Conto  . .  .Portugal 1000  Escudos $1080.46 

Conto  . . .  Brazil 1000  Milreis  (gold) 546 . 15 

Conto  .  . .  Brazil 1000  Milreis  (paper) 324 . 44 

Crore ....  India 100  Lacs  (10,000,000  Rp.) .  3,244,373 . 33 

Guinea. .  .United  Kingdom 21  Shillings 5.11 

Lac India 100,000  Rupees 32,443.73 


Value  of  the  Gramme  of  Gold 


69 


VALUE  OF  THE  GRAMME  OF  GOLD 

According  to  the  intrinsic  GOLD  value  of  the  UNITS  in  countries  using 
the  GOLD  or  the  GOLD  EXCHANGE  Standards  the  GRAMME  of  GOLD 
(fine)  is  worth  as  follows: 


GOLD  STANDARD  COUNTRIES: 

Egypt  

.  .0.134453  of  £E.  1  or  £E.  0.13.4.4" 

Great  Britain  

.  .  0  .  136567  of  £      1  or  £      0.2.8™1 

Peru  

.  .0.136567  of  £p.   1  or  £p.   0.1.36567 

Portugal  

..  0.615116  of  E.     lorE.     0.616118 

Uruguay  

..  0.642611  of  $       lor$       0.642811 

Newfoundland  

..  0.655518  of  $       lor$       0.655518 

United  States,  etc  

..  0.664603  of  $       lor$       0.664603 

Colombia  

.  .  0  .  682838  of  $       1  or  $       0  .  682838 

Russia  

..  1.291606  of  Rb.  1  or  Rb,  1.291608 

Salvador  

..  1.329080  of  C/      lorj£      1.329082 

Japan  

.  .  1  .  333333  of  Y.      1  or  Y.     1  .  333333 

Ecuador  

.  .  1  .  365676  of  S/.     1  or  S/.     1  .  36M7« 

Costa  Rica  

.  .  1  .  428163  of  C.      1  or  C.     1  .  428163 

Netherlands  

.  .  1  .  653439  of  G.     1  or  G.     1  .  653439 

Bolivia  

.  .  1  .  707095  of  B.     1  or  B.     1  .  707095 

Scandinavian  States  .  .  . 

.  .  2  .  479974  of  K.        or  Kr.  2  .  479479 

Germany  

..  2.  790000  of  M.       orM.    2.79 

Austria-Hungary  

..  3.  279979  of  K.        or  Kr.   3.279979 

Montenegro  

.  .  3  .  279979  of  P.         or  P.     3  .  279979 

Latin  Union  

..3.  444444  of  Fr.       or  Fr.    3.444444 

Turkey  

15.  117158  P.         or  P.        15  A™ 

GOLD  EXCHANGE  STANDARD  COUNTRIES: 

Panama  

.  .  0  .  664603  of  B.     1  or  B.     0  .  664603 

Nicaragua  

..  0.664603  of  C/.    1  or  C/.    0.664603 

Straits  Settlements  .... 

..  1.170576  of  $       lor$       1.170678 

Philippines  

.  .  1  .  329206  of  P.      1  or  P.      1  .  3292oa 

Mexico  

.  .  1.333333  of  $       lor$       1.333333 

Argentina  

.  .  1.565670  of  $c/l  lor$c/l  1.56M7° 

Siam  

..  .1.792114  of  T.     lorT.     1.792114 

India  

..2.  048508  of  Rp.  1  or  Rp.  2.0.3 

Ceylon  

..2.  048508  of  Rp.  1  or  Rp.  2.048M8 

Brazil  

..2.  048508  of          l$or        2$048508 

British  East  Africa  and 

Zanzibar  

..2.  048508  of  Rp.  1  or  Rp.  2.048608 

Italian  Somaliland  

..2.  048508  of  Rp.  1  or  Rp.  2.048608 

German  East  Africa  .  .  . 

..2.  092500  of  Rp.  1  or  Rp.  2.092MO 

70 


Modern  Foreign  Exchange 


COINING  VALUE  OF  THE 
OUNCE  OF  GOLD  1000/000 
FINE 

Gold  Standard  Countries 


PAR  VALUE  OF  THE 
AMERICAN  DOLLAR 

Gold  Standard  Countries 


Egypt  

.  £E.    4  .  18  .  2030 

Great  Britain  

.£        4.  4.  II466 

Peru  

.£p.     4.2.47292 

Portugal  

.E.     19.  12827 

Uruguay  

.$       19.  98739 

Newfoundland 

.$       20.  38904 

UNITED  STATES.  .  . 

.$       20.  67188 

Colombia  

.$       21.  23646 

Russia  

.R/     40.  17386 

Salvador  

.C/      41.  33971 

Japan  

.Y.     41.  47133 

Ecuador  

.S/     42.  47292 

Costa  Rica  

.C.     44.  42108 

Netherlands  

.G.     51.  42848 

Bolivia  

.B.     53.  09724 

Scandinavia  

.K.     77.  13652 

Germany  

.M.    86.  77875 

Austria-Hungary  .  . 

.K.  102.  Ol941 

Montenegro  

.P.   102.  Ol941 

Latin  Union  

.F.   107.  13424 

Turkey  

.P.  470.  8161 

Egypt £E. 

Great  Britain .  £ 

Peru £p. 

Portugal E. 

Uruguay . . . .  -. $ 

Newfoundland $ 

Colombia $ 

Russia R. 

Salvador C/ 

Japan Y. 

Ecuador S/ 

Costa  Rica C. 

Netherlands G. 

Bolivia B. 

Scandinavia K. 

Germany M. 

Austria-Hungary. .  .  K. 

Montenegro P. 

Latin  Union • . .  F. 

Turkey P. 


0.20.230<> 
0.4. 1316 
0.2.05484 
0 . 92552 
0.96689 
0.98632 

.94341 
.00 
.00«19 
2.05484 

2.14887 
2.48783 

2.56855 
3.73148 
4  19793 

4.93519 

4.93519 

5.18282 

22.29s36 


Gold  Exchange  Standard  Countries  Gold  Exchange  Standard  Countries 


Panama B.  20. 67183 

Nicaragua C.  20. 67183 

Straits  Settlements .$  36. 40929 

Philippines P/  41. 34368 

Mexico $  41. 47133 

Argentina $cA  48. 69738 

Siam T.  55. 74180 

Brazil 63S71595 

Ceylon R/  63. 71595 

India R/  63.11.2 

British  East  Africa, 

Zanzibar R/  63. 71695 

Italian  Somaliland. .  R/  63 . 71696 
East  Africa 

(ex-German) R/  65 . 08406 


Panama $  1 . 

Nicaragua $  1 . 

Straits  Settlements .  $  1 . 76130 

Philippines P/  2.00 

Mexico $  2.00619 

Argentina $c/l  2 . 35576 

Siam T.  2.69651 

Brazil 3$0822«° 

Ceylon R/  3.08226 

India R/  3.1.1 

British  East  Africa, 

Zanzibar R/  3.08226 

Italian  Somaliland.R/  3.08226 
East  Africa 

(ex-German) R/  3.14851 


Time  Distances 


71 


COINING  VALUE  OF  THE  OUNCE  OF  SILVER  1000/000  FINE 
IN  SILVER  STANDARD  COUNTRIES 

China  (Yuan) Y.  1.28684 

French  Indo-China P.   1.28002 

Hongkong $     1.28210 

Abyssinia T.   1  .S2683 

Honduras $     1 .38239 

Morocco R.  1.38239 

Italian  Eritrea T.  1.38239 

Afghanistan R/  2.9091*     (R.  2.14.2) 

Persia K/  7.50630     (K.  7.10.5) 


TIME  DISTANCES 
(FROM  NEW  YORK) 

Time  usually  considered  in  the  purchase  of  sight  drafts,  as  necessary 
to  receive  remittance.  For  time  drafts  add  days  to  run.  When  dealing 
with  drafts  acceptable  after  arrival  of  goods  more  time  is  considered. 
Time  distance  is  not  considered  on  drafts  drawn  payable  at  certain 
time  after  date. 

SOUTH  AMERICA 


Argentina:  DAYS 

Buenos  Aires 60 

Bahia  Blanca 63 

Cordoba 66 

Mendoza 66 

Rosario 63 

Santa  Fe 66 

Santiago  del  Estero 66 

Bolivia: 

Cochabamba 80 

LaPaz , 75 

Oruro 80 

Potosi 80 

Sucre 80 

Brazil: 

Bahia 45 

Manaos.  .  45 


Brazil— Cani'd  DATS 

Para 36 

Pernambuco 36 

Rio  de  Janeiro 48 

Sao  Paulo 60 

Chile: 

Antof  agasta 66 

Arica 60 

Caldera 72 

Coquimbo 72 

Iquique 60 

Santiago 66 

Valdivia 75 

Valparaiso 66 

Colombia: 

Barranquilla 30 

Bogota 66 


72 


Modern  Foreign  Exchange 


Columbia — Cont'd  DAYS 

Buenaventura 36 

Call 45 

Cartagena 30 

Manizales 48 

Medellin 45 

Popayan 48 

Santa  Marta 30 

Tumaco 36 

Ecuador: 

Bahia 48 

Cuenca 48 

Esmeraldas 54 

Guayaquil 40 

Manta 48 

Riobamba 48 

Quito 48 


Paraguay: 
Asuncion . 


66 


Peru:  DAYS 

Arequipa 60 

Callao 48 

Lima 48 

Mollendo 54 

Paita 36 

Trujillo 48 

Uruguay: 

Montevideo 60 

Paysandu 66 

Venezuela: 

Caracas 21 

Ciudad  Bolivar 30 

La  Guaira 18 

Maracaibo 30 

Puerto  Cabello .  .  .30 


CENTRAL  AMERICA 


Costa  Rica:  DAYS 

Puerto  Limon 18 

Puntarenas 30 

San  Jose 24 

Guatemala: 

Champerico 27 

Guatemala 18 

Livingston 21 

Ocos 30 

Puerto  Barrios. 15 

Quezaltenango 24 

San  Jose 24 

Honduras: 

Amapala 36 

Pedro  Sula 24 

Puerto  Cortes 18 

Tegucigalpa 45 


DAYS 

Nicaragua: 

Bluefields 18 

Corinto 30 

Granada 36 

Greytown 21 

Leon 36 

Managua 36 

Panama: 

Colon 18 

Panama 21 

Salvador: 

Acajutla 45 

Santa  Ana 54 

San  Salvador 48 

Santa  Tecla. .  54 


Time  Distances 


73 


NORTH  AMERICA 


Canada:  DAYS 

Montreal 6 

Ottawa 6 

Quebec 6 

Toronto 6 

Vancouver 18 

Victoria 18 

Winnipeg 12 


Newfoundland: 
St.  John. . 


15 


Mexico:  DAYS 

Guaymas 18 

Mexico  City 18 

Monterey 18 

Progreso 24 

Puebla 24 

Tampico 18 

Veracruz. .  .  21 


WEST  INDIES 


Bahamas: 
Nassau 


DAYS 
.  15 


Barbados: 

Bridgetown 24 

Bermuda: 
Hamilton..  8 


British  Guiana: 
Georgetown . 


30 


British  Honduras: 

Belize 18 

Cuba: 

Cardenas 18 

Cienf  uegos 18 

Havana 12 

Matanzas 18 

Sagua  la  Grande 18 

Santiago 15 


Curacoa: 
Wilhemstad 

Dominica: 
Roseau .... 


24 


24 


Dominican  Republic:  DAYS 

Azua 24 

Barahona 24 

Montecristi 24 

Puerto  Plata 18 

Samana 21 

Sanchez 21 

Santo  Domingo 18 

Dutch  Guiana: 
Paramaribo 30 

French  Guiana: 
Cayenne 36 

Grenada: 
St.  George 24 


Guadeloupe: 
Basse-Terre , 


24 


Haiti: 

CapeHaitien 18 

Gonaives 18 

Jacmal 18 

Jeremie 18 

Miragoane 21 


74 


Modern  Foreign  Exchange 


Haiti— Cont'd  DAYS 

Petit  Goave 18 

Port  au  Prince 18 

PortdePaix 18 

Jamaica: 

Kingston 18 

Martinique: 

Fort  de  France 24 

Porto  Rico: 

Aguadilla 21 

Arecibo..                              .  21 


DAYS 

Mayaguez 21 

Ponce 18 

San  Juan .15 


St.  Lucia: 
Castries . 


24 


Virgin  Islands: 
St.  Thomas 18 

Trinidad: 
Port  of  Spain 21 


ASIA 


Arabia:  DAYS 

Aden 45 

Jeddah 45 

Mascat. .  .  45 


Ceylon: 
Colombo. 


54 


China: 

Canton 66 

Hongkong 60 

Peking 66 

Shanghai 60 

Dutch  East  Indies: 

Batavia 75 

Samarang 81 

Soerabaya 81 

India  (British): 

Bombay 54 

Calcutta. 60 

Karachi 54 

Madras 54 

Rangoon 66 


Indo-China: 
Haiphong . 


75 


DAYS 

Hue 75 

Saigon 75 

Tonkin 75 

Japan: 

Kobe 60 

Nagasaki 60 

Osaka 60 

Tokyo 54 

Yokohama 54 

Persia: 

Bunder-Abbas 75 

Bushire 75 

Teheran 90 

Philippines: 

Manila 66 

Hollo 75 

Siam: 
Bangkok 81 

Siberia: 
Vladivostock. .  .  60 


Time  Distances 


75 


Straits  Settlements:  DAYS 

Penang 75 

Selangor 81 

Singapore 66 


Turkey:  DAYS 

Bagdad 60 

Smyrna 54 

Jaffa..  .  54 


OCEANIA 


Australia:  DAYS 

Adelaide 66 

Brisbane 66 

Fremantle 75 

Hobart 80 

Melbourne 66 

Perth 80 

Sydney 66 


Hawaii:                                 DAYS 
Honolulu . 50 

New  Zealand: 

Auckland 54 

Wellington 54 


EUROPE 


Austria: 
Vienna , 


DAYS 
.  24 


Belgium: 

Antwerp 24 

Brussels 24 

Bulgaria: 

Sofia 60 

Varna. .  .  60 


Checzo-Slovakia : 
Prague 


Denmark: 
Copenhagen . 


24 


30 


Finland: 

Abo 30 

Helsingfors 30 

France: 

Bordeaux 24 

Havre 24 

Cherbourg 18 

Lyon 24 

Marseille.  .  .  30 


DAYS 

Paris 20 

Tours 30 

Germany: 

Berlin 24 

Bremen 20 

Dresden 24 

Hamburg 20 

Munich 24 

Nuremberg 24 

Stuttgart 24 

Greece: 

Athens 36 

Canea  (Crete) 40 


Hungary: 
Budapest . 


24 


Italy: 

Brindisi 24 

Florence 24 

Genoa 24 

Milan 24 

Naples 24 


76 


Modern  Foreign  Exchange 


Italy— Cont'd  DAYS 

Rome 24 

Trieste 24 

Turin , 24 

Jugo-Slavia: 

Fiume 24 

Belgrade 60 


Malta: 
Valetta. 


30 


Netherlands: 

Amsterdam 24 

Hague 24 

Rotterdam 24 

Norway: 

Bergen 24 

Christiania 24 

Stavanger 24 


Poland: 
Warsaw, 


36 


Portugal: 

Lisbon 30 

Oporto 30 

Rumania: 

Bucharest 60 

Bourgas 60 

Galatz 60 

Constance 60 

Russia: 

Moscow 30 

Riga 30 

Petrograd 30 


Spain:  DAYS 

Barcelona  ................  30 

Cadiz  ...................  30 

Granada  .................  30 

Madrid  ..................  30 

Malaga  ..................  33 

Santander  ...............  30 

Sweden: 

Gottenburg  ..............  30 

Malmo  ..................  30 

Stockholm  ...............  30 

Switzerland: 

Basel  ....................  24 

Bern  ....................  24 

Geneva  ..................  24 

Interlaken  ...............  30 

Lucerne  .................  24 

Zurich  ...................  24 

Turkey: 
Constantinople  ...........  36 


Ukraine: 
Odessa. 


36 


United  Kingdom: 

Belfast 20 

Birmingham 18 

Cork 18 

Dublin 18 

Edinburgh 20 

Glasgow 20 

Leeds 20 

Liverpool 18 

London 20 

Manchester 18 

Southampton 18 


Time  Distances 


77 


AFRICA 


Algeria: 
Algiers . 


DAYS 

.  30 


Angola: 
Loanda 75 

Belgian  Kongo: 

Boma.  .  .  60 


British  East  Africa: 
Mombasa.  . 


60 


Egypt: 

Alexandria  ...............  36 

Cairo  ....................  36 

Khartum  ................  48 

Port  Sudan  ..............  42 

Suez  ...................  33 

French  West  Africa: 

Bassam  ........  ..........  72 

Senegal  .................  54 


French  Somali: 
Djibouti 


Gambia. 
Bathurst 


72 


54 


East  Africa  (formerly  German). 
Dar-Es-Salaam  ...........  72 

Gold  Coast: 
Akkra  ...................  54 

Kamerun: 

Victoria  .................  75 

Liberia: 

Monrovia.  .  .  72 


Madagascar:  DAYS 

Tamatave 66 

Tananarive .  .  .66 


Mauritius: 
Port  Louis . 


120 


Morocco: 

Casablanca 36 

Fez 30 

Tangier 24 

Nigeria: 

Lagos 60 

Old  Calabar 60 

Portuguese  East  Africa: 

Lourenco  Marques 72 

Mozambique 80 


Seychelles: 
Mahe.  . 


Sierra  Leone: 
Freetown.  , 


60 


54 


Southwest  Africa: 

Luderitzbucht 72 

Swakopmund 72 

Union  of  South  Africa: 

Bloemf  ontein 66 

Cape  Town 60 

Durban 66 

Johannesburg 66 

Port  Elizabeth 66 

Pretoria. .  .  66 


Zanzibar  Prot.: 
Zanzibar. . 


72 


78 


1 

s 


I 

I     § 


.a 
I 


SI 

a  3 

s » 


M       O 

i s 

3     05 
P 


a| 

§  ° 


o 


K    g 

O    £ 


Modern  Foreign  Exchange 

S  1 1 1  8  8  3  I  8  1 1  8  I  8  I 


i-HOOOTHi-II>OrHrHO»-<O'-lO 


rH    O    O    rH    O    O    rH 


(NiOOOrt<(N(N»OOOC<li-H'-H(NCO(NO 
OOb-iOOOOOOOiOCOCOOOOOOOCO 
i-HQO(NOSTHTHCX)C^rHN.OOT-iOOi—  ICO 


T-HOOOTHrHt>O'-H'—  lOi—  I    O    »-H    O 


1 


.      . 


^     ;  j  J     :   J  | 

_2    *^  OT      r 


II 

•go 

II 


(22 


11 

II 


8. a 

^^         Q} 

II 


II 

.a  ^ 

u 


I 

•g- 

I  ft 

1-8 


si 

1* 

$» 

« 


Monetary  Units  —  Intrinsic  Equivalents 


§ 


.  t 


9 

9    »O  5    g 

-    O  2    £ 

CO       •   Q  <N    00 


79 


§  8 


II 


llosllolll 

CQi-H^^^OC^T^O 


SCO   OS 
O    »H 


s 


OS 


III 

O    S 


8 


8 


3g£ 


CO 


o  o  TH  o 


80 


o  o 


g  S 

s  § 

^  a 


02     W 

H       J 

|s 

<  H 
PS  !? 
O  £ 


EH  S 

W  S 

O  g 

3  3 

£  S 


§ 


Modern  Foreign  Exchange 


S  o  S  I  w  £  PH*  «» w 


OOOOOOO»HO 


^ 


OOOOOOO'-iO 


CO   l> 

T-H      1-1 

O>   05 


838 
CO  r}H   CO 


8S8 


OOOOOOOi-HO 


b^.a^S^is^ 
tfc3P£w£pHPH« 


3  1 .1  1  g 


.si  'i  * 
8  gs 


lfr|1 

_N  ^4    So   S 

"S  s  S  a) 


Monetary  Units — Intrinsic  Equivalents 


*    g 

H  I 


H 

i 


c<i?j?ic<i$H<N?j«pa5S> 

T^cocOCOCOCOCOiOTliTH 
OOOOOOOOOOi-tHOO 


•    QQ    ^^    ^Q    r^    QQ 


<M 


-a  .3 


81 


82 


0    0 


5  g 
g§ 

^    OQ 


si 
ll 

ts  tf 
o 


Modern  Foreign  Exchange 


g  s  §  s 

O^    O^    CO    00 
<N   N  »H   CO 


t^  r^  co  c<i 

CO   CO   »C   CO 

d  d  d  d 


OQ  O  CO  CO 


Monetary  Units — Intrinsic  Equivalents 


I  * 


S  I 

CO   & 


88 


&  CO 
COI>t>-t>-f>»t>-t>«'-H 

dddddddddd 


<N   CXD 


2  a 


dddddddddd 


is  is 

CO       7. 

^'^.S'^ 


ill 11 111 


.5  53   rt 


£1 


s  .-§ 


!S  8'S 


83 


84 


.S3 

I 


Modern  Foreign  Exchange 
8888 


H— '     •i-' 

II 


^       5 


5  I 


c3    o3    c3    03 


gggg 


O5    O5 

(M   (N 


2  * 

3  ^ 

o  a 


'o  'o 

O  O 


PLH    O 


it] 

o  o  w 


Commercial  Rates  of  Exchange  85 


COMMERCIAL  RATES  OF  EXCHANGE 

Before  the  War,  when  gold  was  the  arbitrator  of  ex- 
changes, Commercial  rates  were  limited  in  their  fluctua- 
tions by  the  "gold  points"  exception  made  only  of  credit 
risks  and  long  time  investments  as  explained  on  page  47. 
The  following  tables  refer  to  that  time. 

At  present  there  is  no  limit  to  fluctuations  in  such 
rates,  supply  and  demand  governing  the  market. 

The  United  States  has  accumulated  during  the  War 
huge  credits  against  Europe,  the  interest  and  principal 
of  which,  as  they  become  due,  will  increase  their  natural 
debit  balance  of  trade.  This  balance  was  usually  in  favor 
of  this  country  and  it  is  likely  to  become  larger  because 
of  the  present  inability  of  Europe  to  create  large  enough 
credits  in  its  favor  abroad  by  exports  of  its  products. 

The  movement  on  foot,  to  interest  the  people  in  invest- 
ments in  foreign  countries  tends  to  artificially  increase 
the  demand  for  exchange  by  creating  credit  in  the  United 
States  hi  favor  of  those  countries. 

This  will  naturally  affect  exchange  rates  favorably  to 
those  countries  and  will  help  them  to  purchase  the 
American  products  they  need.  But  it  can  not  stabilize 
rates  of  exchange  nor  assure  anything  for  the  future. 
Every  successive  year  credits  will  become  due  in  prin- 
cipal and  interest  again  and  it  will  be  a  permanent  struggle 
to  fill  the  yearly  gap  in  order  to  maintain  whatever  may 
be  considered  as  "reasonable"  rates  of  exchange.  The 
remedy  is  only  temporary  and  for  a  very  indefinite  time. 

The  tables  of  maximum  and  minimum  rates  appearing 
hi  the  following  tables  are  therefore  obsolete.  They  are 
published  more  as  a  matter  of  record. 


86 


Modern  Foreign  Exchange 


COMMERCIAL  RATES  OF  EXCHANGE 

MAXIMUM  AND  MINIMUM  RATES  FOB  EXCHANGE  ON  FOREIGN 
COUNTRIES  IN  THE  UNITED  STATES 

GOLD  STANDARD  12 


COUNTRIES 

UNITS 

PAR 
VALUE 
IN  U.  S. 
CURRENCY 

MINIMUM 

MAXI- 
MUM 

Austria  

Krone 

S0.20263 

$0  20 

$0   205° 

Belgium 

Franc 

0  19295 

0  19 

0  194° 

Bolivia  

Boliviano  

0.38932 

0.37 

0.3950 

British  Honduras  

Dollar  

1.00 

0.98 

1.02 

British  West  Indies  . 

Dollar  

1.00 

0.98 

1.02 

British  West  Indies  .  .  . 
British  Colonies:  l 
Australia  

Pound  
Pound  

4.86666 
4  .  86656 

4.84 
4.80 

4.88 
4.91 

Africa         .       ... 

Pound. 

4.86656 

4  80 

4  91 

America 

Pound 

4  86856 

4  84 

4  88 

Bulgaria  

Lev  

0.19295 

0.18 

0.20 

Canada  

Dollar.  .  .  . 

1.00 

0.9960 

l.OO50 

Colombia 

Peso  .  .  . 

0  97331 

0  95 

0  99 

Costa  Rica 

Colon 

0  46536 

0  4550 

0  4750 

Cuba  

Peso  

1.00 

0.99 

1.01 

Denmark  . 

Krone 

0.26799 

0.26 

0  2760 

Ecuador 

Sucre 

0  48665 

0  46 

0  50 

Egypt.  . 

Egyptian  Pound  .  . 

4.94307 

4.85 

5.03 

Finland  

Markka  .  .  .  .  

0.19295 

0.1850 

0.1980 

France   . 

Franc  

0  .  19296 

0.19 

0.1940 

French  Colonies:  2 
Africa 

Franc 

0  19295 

0  1860 

0  2060 

America  3  

Franc  

0  .  19295 

0.15 

0.18 

Germany  

Mark  

0.23821 

0.2350 

0.2410 

Great  Britain 

Pound  Sterling  .  .  . 

4.86656 

4.82 

4.9065 

Greece 

Drachma  

0.19296 

0.1860 

0.1960 

Hawaii  
Hungary 

Dollar  
Korona  

1.00 
0.20263 

0.97 
0.20 

1.03 
0.2050 

Commercial  Rates  of  Exchange 


87 


COMMERCIAL  RATES  OF  EXCHANGE 

MAXIMUM  AND  MINIMUM  RATES  FOR  EXCHANGE  ON  THE  UNITED  STATES 
IN  FOREIGN  COUNTRIES 

GOLD  STANDARD,14 


COUNTRIES 

UNITS 

PAR    VALUE 
OF  $1  U.  S. 
CURRENCY 

MINIMUM 

MAXIMUM 

Austria  

Kronen.  .  .  . 

4.93519 

Kr.        4.90 

Kr.       5.00 

Belgium   . 

Francs  

5.18262 

FT.         5.15 

Fr.       5.25 

Bolivia 

Bolivianos  .  . 

2.56855 

B.          2.50 

B,         2  64 

British  Honduras.  . 
British  West  Indies 
British  West  Indies 
British  Colonies:  l 
Australia  .... 

Dollars  
Dollars  .... 
Pence  

Pence.    . 

1.00 
1.00 
.4931« 

49316 

$           0.98 
$           0.98 
Pence      .49 

Pence      .4850 

$           1.02 
$           1.0 
Pence     .4976 

Pence      50 

Africa 

Pence 

49316 

Pence       4825 

Pence      4976 

America  

Pence.  .  . 

49316 

Pence      .4876 

Pence      4990 

Bulgaria 

Leva 

5  18262 

Fr.        5  14 

Fr.       5  26 

Canada  

Dollars.  .  . 

1.00 

$           0.9950 

$           1  OO50 

Colombia  

Peso 

1  02742 

1.01 

1  05 

Costa  Rica  

Colones.  .  .  . 

2.14887 

c.           2.13 

c.         2.18 

Cuba  

Peso  .... 

1.00 

$           0.99 

$           1  01 

Denmark  
Ecuador 

Kroner  .... 
Sucres 

3.73148 
2  05484 

Kr.        3.70 
S/          2  03 

Kr.       3.76 
S/         2  11 

Egypt.  . 

Piastras   . 

20.  2303 

Pias     19.5 

Pias    21  0 

Finland  . 

Markka 

5  18262 

Mka.     5  15 

Mka     5  26 

France 

Francs 

5  18262 

Frs        5  15 

Frs       5  25 

French  Colonies:  * 
Africa  .   . 

Francs 

5  18262 

Frs        5  14 

Frs       5  26 

America  *  

Francs  

5.18262 

Frs.       5.20 

Frs.      6  66 

Germany  .  .  ,  . 

Mark.  . 

4  19793 

Mks.     4  14 

Mks     4  26 

Great  Britain. 

Pence 

49316 

Pence       4880 

Pence       4980 

Greece.  . 

Drachmas 

5  18262 

Dr        5  14 

Dr        5  26 

Hawaii 

Dollars 

1  00 

S            0  OS 

$1   AO 

Hungary.  . 

Korona 

4  93619 

Kr         4  90 

Kr        5  00 

88 


Modern  Foreign  Exchange 


GOLD  STANDARD — Continued 


COUNTRIES 

UNITS 

PAR  VALUE 
IN  U.  8. 
CURRENCY 

MINIMUM 

MAXI- 
MUM 

Italy.  . 

Lira 

0  19295 

0    19 

0   1940 

Japan 

Yen 

0  49846 

0  4850 

0  5026 

Java 

Guilder 

0  40196 

0  39 

0  41 

Korea  

Yen  

0.49846 

0  48 

0  51 

Liberia  5  

Dollar 

1  00 

0  95 

1  05 

Montenegro  

Perper  

0.20263 

0.20 

0.2050 

Netherlands  

Guilder  

0.40196 

0.3950 

0.4050 

Newfoundland  .    . 

Dollar  

1.01387 

l.OO50 

1.02 

Norway 

Krone 

0  26799 

0  26 

0  2760 

Peru 

Libra 

4    86656 

4  80 

5  00 

Porto  Rico  

Dollar  

1.00 

0.98 

1.02 

Portugal  .              .    . 

Escudo 

1.08056 

0  94 

1.04 

Rumania 

Leu 

0  19296 

0  18 

0.20 

Russia  

Rouble.  

0.5145« 

0.5050 

0.5280 

Salvador  

Colon 

0  50 

0  49 

0  51 

Santo  Domingo  

Dollar.  .  . 

1  00 

0  99 

1  01 

Serbia  

Dinar 

0  19295 

0  18 

0  20 

Spain  

Peseta 

0  19295 

0  1850 

0  1960 

Sweden 

Krona 

0  26799 

0  26 

0  2750 

Switzerland  

Franc  . 

0  19295 

0  19 

0  1940 

Turkey  

Piastre 

0  04398 

0  04 

0  0460 

Uruffuav 

Peso 

1  03424 

1  00 

1  05 

Venezuela  

Bolivar  

0.19296 

0.1850 

0.1976 

The  Egyptian  Pound  is  divided  into  100  Piastres  of  10  Ochr-el-guerch, 
or  milliemes.  The  British  Pound  is  divided  into  20  Shillings  of  12  pence. 

Peruvian  Pound  is  divided  into  10  Soles  of  100  centavos  each.  Turkish 
Piastre  is  divided  into  40  Paras.  All  other  units  are  divided  into  hundredths. 

1  Not  otherwise  specified.  2  Except  Indo-China.  3  Guadeloupe  and 
Martinique  rates  are  below  par.  4  Except  East  Africa.  6  Exchange  on 
Liberia  is  nominal.  It  is  figured  on  a  gold  basis,  but  its  circulation  is  not 
gold. 

"Maximum  and  minimum  rates  of  exchange  (gold  points)  are  opera- 
tive only  when  gold  is  allowed  to  move  freely  from  one  country  to 
another.  Freight  and  insurance  rates,  as  well  as  transportation  delay 
and  rate  of  interest  are  factors  increasing  or  decreasing  the  figures 
above  and  below  par. 


Commercial  Rates  of  Exchange 
GOLD  STANDARD — Continued 


89 


COUNTRIES 

UNITS 

PAR  VALUE 
OP  $1  U.  8. 
CURRENCY 

MINIMUM 

MAXIMUM 

Italv 

Lira  

5.18262 

Lr.         5.15 

Lr.       5.25 

Japan.  . 

Yen  

2.00619 

Yen       1.97 

Yen     2.03 

Java  

Gulden  .... 

2.48783 

Gldn.    2.43 

Gldn.  2.53 

Korea 

Yen  

2.00«19 

Yen       1.96 

Yen     2.04 

Liberia  6  
Montenegro  .  . 

Dollars.  .  .  . 
Perpera.  .  .  . 

1.00 
4.93519 

$           0.95 
Per.       4.90 

$           1.05 
Per.      5.00 

Netherlands  
Newfoundland  
Norway  

Gulden  
Dollars  
Kroner  

2.48783 

0.98632 
3.73148 

Gldn.    2.46 
$           0.9760 
Kr.        3.70 

Gldn.  2.50 
$          0.9960 
Kr.       3.76 

Peru 

Libras  .  . 

0.2.05484 

£p.        0.2.03 

£p.       0.2.10 

Porto  Rico  

Dollars.  .  .  . 

1.00 

$           0.99 

$          1.01 

Portugal  .  .  . 

Escudo  

0.92552 

E.          0.96 

E.         1.04 

Rumania 

Lei   . 

5  18262 

Lei        5.16 

Lei       5.26 

Russia  

Roubles  

1.94338 

Rbls.     1.91 

Rbls.    1.98 

Salvador  

Colon 

C/2 

C/l  96 

C/        2.04 

Santo  Domingo  .... 
Serbia 

Dollars.  .  .  . 
Dinars 

1.00 
5  18282 

$           0.99 
Din.      5  16 

$           1.01 
Din.     5  26 

Spain.  . 

Pesetas.  .  .  . 

5.18282 

Pes.       5.15 

Pes.      5.25 

Sweden     .    . 

Kronor  .  .  . 

3  73148 

Kr.        3.70 

Kr.       3  76 

Switzerland 

Francs 

5  18262 

Frs.       5  15 

Frs.      5  25 

Turkey  

Piastres.  .  . 

22.29s3 

Pias.   22.00 

Pias.  23.50 

Uruguay.  . 

Pesos 

0  96s89 

$           0  95 

$           1  00 

Venezuela  

Bolivares  .  .  . 

5.18262 

Bol.       5.16 

Bol.      5.30 

3  Guadeloupe  and  Mar- 
5  Exchange  on  Liberia  is 


The  Egyptian  Pound  is  divided  into  100  Piastres  of  10  Ochr-el-guerch  or 
milliemes.    The  British  Pound  is  divided  into  20  Shillings  of  12  pence. 

Peruvian  Pound  is  divided  into  10  Soles  of  100  centavos  each.      Turkish 
Piastre  is  divided  into  40  Paras.    All  other  units  are  divided  into  hundredths. 

1  Not  otherwise  specified.  2  Except  Indo  China, 
tinique  rates  are  below  par.  4  Except  East  Africa, 
nominal.  It  is  figured  on  a  gold  basis,  but  its  circulation  is  not  gold. 

12  Maximum  and  minimum  rates  of  exchange  (gold  points)  are  opera- 
tive only  when  gold  is  allowed  to  move  freely  from  one  country  to  an- 
other. Freight  and  insurance  rates,  as  well  as  transportation  delay  and 
rate  of  interest  are  factors  increasing  or  decreasing  the  figures  above 
and  below  par. 


90 


Modern  Foreign  Exchange 

GOLD  EXCHANGE  STANDARD 


COUNTRIES 

UNITS 

PAR  VALUE 
IN  U.  S. 
CURRENCY 

MINIMUM 

MAXIMUM 

Argentina  

Peso  (curso  legal) 

$0.42449 

$0.41M 

S0.4350 

Brazil  
British    East  Africa 
and  Zanzibar 

Milreis  ........ 
Rupee. 

0.32444 

0  32444 

0.3150 
0  30 

0.3360 
0  35 

Ceylon 

Rupee 

0  32444 

0  31 

0  34 

E.  Africa  (ex-G'rm'n) 

Rupee  

0.31761 

0.30 

0.34 

India 

Rupee  

0.32444 

0.3180 

0.3380 

Italian  Somaliland  .  . 
Malay  States  
Mexico  

Rupee  
Dollar  
Peso  

0.32444 

0.56776 
0.49848 

0.30 
0.5560 
0.4860 

0.35 
0.5760 
0.5030 

Nicaragua 

Cordoba  

1.00 

0.98 

1.02 

Panama 

Balboa  . 

1  00 

0.99 

1.01 

Philippines 

Peso 

0  50 

0  49 

0  51 

Siam    

Tical  

0.37085 

0.36 

0.38 

Straits  Settlements. 

Dollar  

0.56^ 

0.55s0 

0.5750 

The  Brazilian  Milreis  is  divided  into  1000  Reis.  Indian  Rupee  is 
divided  into  16  Annas  of  12  pies.  All  other  units  are  divided  into 
hundredths. 


Commercial  Rates  of  Exchange 
GOLD  EXCHANGE  STANDARD 


91 


COUNTRIES 

UNITS 

PAR  VALUE 
OF  $1  U.  8. 
CURRENCY 

MINIMUM 

MAXIMUM 

Argentina  

Pesos  (curso  legal) 

2.3567fl 

$C/1    2.31 

$c/l  2.40 

Brazil 

Milreis  

3S.082260 

3$.  000 

3$.  150 

British  East  Africa 
and  Zanzibar.  .  .  . 

Rupee  

3.08226 

Rp.  2.80 

Rp.  3.50 

Ceylon  

Rupee  

3.08228 

Rp.    3  00 

Rp.  3  15 

E.  Africa  (ex-German) 
India 

Rupee  
Rupee 

3.14861 
314 

Rp.    3.00 
Rp    300 

Rp.  3.30 
Rp    3  2  3 

Italian  Somaliland  . 

Rupee  

3.08226 

Rp.    2.90 

Rp.  3  50 

Malay  States  
Mexico 

Dollar  
Peso 

1.76130 

2  OO619 

$        1.73 

$        1  98 

$       1.80 
$       2  02 

Nicaragua  

Cordoba  

1.00 

C.      0  98 

C.      1  02 

Panama  

Balboa  . 

1  00 

B.      0  99 

B.      1  01 

Philippines 

Peso 

2  00 

P       1  96 

P       2  04 

Siam 

Tical 

2  69651 

T       2  60 

T      2  80 

Straits  Settlements  . 

Dollar  

1.76130 

$        1.73 

$        1.80 

The  Brazilian  Milreis  is  divided  into  1000  Reis.     Indian  Rupee  is  divided 
into  16  Annas  of  12  Pies.    All  other  units  are  divided  into  hundredths. 


92  Modern  Foreign  Exchange 

SILVER  STANDARD. — Maximum  and  minimum  rates  for 
exchange  with  SILVER  STANDARD  countries  cannot  be 
fixed.  They  are  not  limited  to  transportation,  delay  and 
other  expenses  for  moving  specie,  but  are  subject,  besides, 
to  the  constantly  fluctuating  GOLD  price  of  SILVER. 

To  obtain  maximum  and  minimum  possible  rates  the 
price  of  SILVER  has  to  be  considered  first,  and  to  this 
moving  expenses  and  others  must  be  added  or  subtracted. 

Very  close  figures  can  be  obtained  by  calculating  the 
intrinsic  gold  value  of  the  silver  unit  according  to  the 
price  of  silver  on  the  market  and  adding  or  subtracting 
expenses. 

One  Piastre  of  Indo-China  contains  .78125  of  a  fine 
ounce  and  it  is  worth,  at  the  price  of  100  cents  per  ounce 
fine,  $0.78125.  To  find  the  commercial  value  of  such 
Piastre  hi  the  United  States,  the  cost  of  transportation, 
other  expenses  and  compensation  for  delay  must  be 
deducted.  Considering  such  expenses  to  amount,  in  all, 
to  3%,  the  sum  of  $0.02345  must  be  deducted,  lowering 
such  a  value  to  $0.75780,  or  roughly  753/4  cents.  This  is 
the  highest  rate  a  Piastre  of  Indo-China  is  worth  here, 
when  the  price  of  silver  is  100  cents.  When  the  price  of 
silver  is  higher  the  value  will  also  be  higher,  when  lower 
the  value  will  be  lower. 

To  find  the  maximum  and  minimum  rates  of  United 
States  money  in  Indo-China,  the  proceedings  have  to  be 
reversed.  One  dollar  of  United  States  money  is  worth  in 
Indo-China,  when  silver  is  quoted  at  100  cents  per  ounce 
fine,  as  follows: 


Commercial  Rates  of  Exchange  93 

1  Piastre  at  100  cents  per  oz.  fine  is  worth $0.78125 

1  Dollar  is  worth  (1:78125) P.1.28002 

This  is  the  intrinsic  gold  equivalent.  The  maximum  rate 
will  be  found  by  dividing  1  by  75%  =  P.1.31961. 
The  minimum  rate  will  be  found  by  adding  the  cost  of 
transporting  silver  to  Indo-China  ($0.78125  plus  $0.02345 

=  $0.80470)  and  dividing  1  by  the  result   (  = 

MJ.oLrli  U 

P.I. 24.270).  The  American  dollar,  on  this  basis,  would 
fluctuate  between  P.  1.32,  which  is  the  highest  rate  which 
can  be  asked  for  when  the  price  of  silver  is  100  cents  and 
P.  1.24,  which  is  the  American  dollar's  lowest  quotation 
possible,  as  long  as  the  price  of  silver  is  100  cents  per  oz. 
fine. 

The  same  process  is  to  be  followed  in  all  other  cases. 

Abrasion  of  coins  is  also  an  item  which  has  to  be  taken 
into  consideration.  Usually  the  Silver  Standard  countries 
do  not  redeem  their  coins  nor  exchange  them  for  new  ones, 
and  the  holder  has  to  suffer  loss  by  abrasion.  China  is  the 
only  country  which  mints  silver  at  home,  either  into 
coins  or  into  bars  (sycee)  which  circulate  as  money.  All 
the  others  com  their  silver  abroad  and  put  it  into  circula- 
tion through  the  regular  channels — the  banks.  When 
exporting  silver  corns  these  are  not  selected,  but  shipped  as 
obtained.  The  loss  may  not  be  very  important,  but 
nevertheless  it  affects  the  high  domestic  rate  limit  for 
exchange  and  consequently  the  quotation  limit  from 
abroad. 

INCONVERTIBLE  PAPER  MONEY. — Rates  of  exchange  in 


94  Modern  Foreign  Exchange 

countries  using  inconvertible  paper  money  have  no  limit 
of  fluctuation,  as  they  have  no  term  of  comparison  with 
gold.  Chile  is  the  only  country  which  can  have  a  highest 
limit  quotation  in  gold  for  its  paper  Peso  since  its  conver- 
sion law  fixes  its  value  at  18  British  pence  (.54918  grammes 
fine  gold).  But  such  a  law  is  not  in  operation  and  paper  is 
quoted  at  a  price  that  has  no  relation  with  said  18  pence. 
Guatemala  and  Paraguay  have  not  yet  provided  for 
the  redemption  of  their  notes,  and  these  are  quoted  at 
varying  rates  without  reference  at  all  to  any  gold  value. 
Haiti  has  planned  for  the  conversion  of  its  money  into  one 
on  a  gold  basis.  If  this  is  done  it  should  be  classified 
among  gold  standard  countries. 


EXCHANGE  QUOTATIONS 

The  proper  form  to  quote  rates  of  exchange  in  the 
United  States  should  be  expressing  in  American  money 
the  value  given,  or  demanded,  for  the  foreign  unit,  as  is 
done  when  referring  to  English  money — so  many  dollars 
and  cents  per  one  pound  sterling. 

Although  this  is  done  for  exchange  on  some  countries, 
commercial  habits  have  established  also  other  forms  which 
are  used  by  almost  all  bankers. 

Exchange  for  German  money  was  quoted  at  so  many 
cents  for  every  four  marks.  For  instance,  .96,  .95J^,  etc., 
which  means  96  or  95^  cents  American  for  Mks.  4.  The 
equivalent  per  1  mark  was  easily  found;  dividing  the  quo- 
tation by  4,  and  would  mean,  in  the  above  mentioned  case, 
24,  or  .23875  cents  respectively.  Some  bankers,  however, 
quoted  straight  in  cents  per  mark  and  would  say  24  or 
23  7/8  cents.  At  present  the  mark  is  quoted  in  cents. 

Exchange  on  France,  Belgium,  and  Switzerland  is 
usually  quoted  at  so  many  francs  per  dollar  (fcs.  5.24,  fcs. 
5.23%,  etc.).  Some  bankers  also  quote,  as  should  be,  at 
so  many  cents  American  money  per  franc  (.19,  .192, 
.195,  etc.).  The  same  applies  to  the  other  countries  of  the 
Latin  Union  system  (Spain,  Italy,  Greece,  Rumania, 
Bulgaria,  Serbia,  Finland).  It  is  quite  easy  to  under- 
stand the  quotation,  when  in  the  first  form,  and  when  in 

95 


96  Modern  Foreign  Exchange 

the  second.  Exchange  bulletins  issued  by  bankers  men- 
tion figures  only,  sometimes  even  without  the  monetary 
signs.  But  no  mistake  can  be  committed  when  reading, 
for  instance,  5.24J4,  or  524J4,  on  any  of  the  Latin  Union 
countries.  It  could  be  nothing  else  than  5.24J^  francs 
per  $1,  or  524.25  francs  per  $100.  If  .19,  19J4,  etc.,  is 
mentioned,  it  is  easily  understood  that  it  means  19,  19  ^ 
cents  American  money  per  franc  (or  peseta,  lira,  markka, 
etc.). 

Exchange  on  Austria,  Hungary,  Denmark,  Sweden, 
Norway,  Holland,  Russia,  Portugal,  Egypt,  Mexico,  India, 
Japan,  Philippines,  etc.,  is  expressed  in  dollars  and  cents 
per  foreign  unit.  For  instance,  202,  2025  on  Austria  and 
Hungary,  meaning  20  1/5  or  20  1/4  cents  American  per 
krone;  .2675,  .2685,  on  any  of  the  Scandinavian  States, 
meaning  26%,  26  85/100  cents  American  per  krone  or 
krona,  etc. 

Of  course  rates  can  be  figured  in  both  ways  —  so  many 
dollars  and  cents  per  foreign  unit,  or  so  many  foreign 
units  and  fraction  per  dollar.  When  wishing  to  find  the 
corresponding  quotation  expressed  in  other  terms  than 
the  one  given,  simply  divide  1  by  the  rate  mentioned.  For 
instance,  the  rate  of  5.25  francs  per  $1  corresponds  to 

$0.190476  and  a  fraction  per  1  franc.    The  rate  of 


$0.96  per  4  marks,  which  is  (-—}  $0.24  per  one  mark  corre- 
sponds to    rr    Mks.  4  16  2/3  per  $1. 


Exchange  Quotations  97 

Rates  for  exchange  on  Canada,  Porto  Rico,  Hawaii, 
Panama  and  all  other  countries  using  the  same  dollar  as 
the  United  States,  are  expressed  in  terms  of  so  many 
dollars  and  cents  per  dollar,  or  hi  a  percentage  of  premium 
or  discount.  For  instance,  $0.99875  on  Canada  would 
mean  that  $0.99  7/8  American  is  given  or  demanded  for 
one  dollar  of  Canada.  This  is  also  expressed  as  1/8  of 
1%  discount.  Were  the  rate  $1.00125  it  woujd  be  1/8  of 
1%  premium, 

The  Newfoundland  dollar  being  slightly  better  than  the 
American  ($1.01387),  rates  would  be  quoted  expressing  in 
American  money  the  value  given  or  demanded  for  one 
Newfoundland  dollar  ($1.014,  $1.015,  etc.). 

Cuba  uses  its  own  money  exactly  like  the  American 
money.  Its  exchange  is  always  quoted  at  so  many  cents 
American  for  one  peso.  When  drawing  in  American 
dollars  the  rate  would  be  quoted  at  a  premium  or  dis- 
count (1/8  of  1%,  1/4,  etc.). 

Figures  mentioned  above  refer  to  pre-war  times.  They 
are  given  only  as  examples,  as  exchange  rates  at  present 
are  entirely  different. 

Rates  on  France,  Switzerland,  Belgium,  Germany,  Italy, 
and  Holland,  and  eventually  some  other  country,  are 
often  quoted  "plus"  (+)  or  "minus"  (— )  1/16,  1/32, 
1/64,  or  multiplies  of  these.  This  means  that  on  the  total 
value  as  a  result  of  the  exchange  1/16,  1/32,  or  1/64  or 
multiplies  of  ONE  PER  CENT  is  added  (in  the  first  case)  or 
deducted  (in  the  second).  For  instance,  Fes.  52,600  at 
5.25  +  1/32  would  be: 


98  Modern  Foreign  Exchange 

Fes.  52,500  at  5.25 $10,000.00 

Plus  1/32  of  1% 


$10,003.12^ 

If  the  rate  were  5.25-1/32,  the  value  would  be  $10,000 
less  $3.12J4  or  $9,996.87^- 

This  fraction  could  be  considered  in  the  exchange  rate, 
reversing  the  operation,  that  is,  deducting  from  the  rate 
when  +  and  adding  when  — .  For  instance,  the  rate  of 
5.25  +  1/32  would  be  5.25  kss  0.00164,  or  net  5.24836. 
The  rate  (divisor)  being  decreased,  the  number  of  dollars 
(result)  would  be  increased.  If  the  rate  was  5.26  —  1/32, 
the  net  rate  would  be  5.25164.  The  rate  (divisor)  being 
increased,  the  number  of  dollars  (result)  would  be  de- 
creased. In  this  example  fcs.  52,500  at  5.24836  would  be 
10.003.12^,  the  3.12^  appearing  already  added  hi  the 
result.  At  5.25164  the  result  would  be  9.996.87  J4  the 
3.12J/2  in  this  case  appearing  deducted  in  the  result.  But 
this  is  too  cumbersome,  the  first  form  being  much  easier 
and  simpler. 

It  is  well  to  have  in  mind  that  every  1/16,  1/32,  and 
1/64  of  1%  represents  the  following: 

1/16  1/32  1/64 


on  100 

0.0625 

0.03125 

0.015625 

1,000 

0.625 

0.3125 

0.15625 

10,000 

6.25 

3.125 

1.5625 

100,000 

62.50 

31.25 

15.625 

1,000,000 

625. 

312.50 

156.25 

Colonies  and  Possessions 


99 


Ill 

a  a  3 

<3  <  O 


;    :  8  8  .3  8  8 


'C  PC  fl  'C  'C 

w    53    53  oJ  53   S 

IS  a  s  8  a  a 

<:  <  <  o  <  < 


~ 


i 

o 
•ss> 

II 

00 


ill 


s 


Mil1"1 


s 


o  o 


•9   B   •   «  a   E 

Jg     O     oj     oj     eg     53 

Q  Q  H  W  fe  fe 


«  J 


s 


•c 


-P  ' 

- 


iiiiii-H-g-3 


c  -c     -c  - 


•^ 

•d  -d  -d 


100 


Modem  Foreign  Exchange 


§ 

o 


8  £         &  I  4r  8  *  ••?  W  &  8  TS  fc  .13  3    £ 

J5  S  •  £  3Tf£  <P  fl       •   f   r*   n°   A°   £  $3 

fc  PQ  #   H»  PQ  PQ  Kt<  Ck  PQ  QQ  P4  m  Pk  P<  PQ  *   *    R  W 


•E    « 

®  -2 


3OwwS«      -      AOQQ^^QOQJQ 

Iiiiliiiiliili5ll|jjj^ 

•^  ^^  ^^  -^^  *^^  ^^  ^^  ^^  •^^  ^^  -^^  "^^  ^^  ^^  "^Q  "^5  *^C  hH  ^^  ^^  "^  ^S 


Colonies  and  Possessions 


101 


. 

H  H 


•— i     .   w     •   d 

3-2^  :J 
1 1  s  <5j  | 

5  £  £  1 5 


:P 
a -8 


o>      .  ^n 


illiS*<i  ;ll  :=8. 

iH'iilHiJr9 

-t»  -u  -M  -£ 

CQ  CQ  C/i  CQ  I 


II 


02  «2  CO 


102 


Modern 


1 

I 

o 


tfcriwign  Exchange 


.a 


III 


"S 


^ 


8 


Intrinsic  Value  of  Silver  Currency 


103 


3  &  £  &  £  § 

CO  CO  CO  (N  CO  ^ 

TJ<  ^  co  c<i  co  co 

i-H    rH    CS  <N 


55g 


5° 


i§ 

So^ 


IS 


co  oo  e$  co 


g" »  :   '3 
5  5  a  «;  a 

a^^^fg 


:  8 

a 


S  J  5 


1 


o  o  ^  o  g 

OO   00    C^l    OO   00 


CO   CO 


10  co 

00   t*- 
£"•  CO 

CO   10 


10  »o  10  10  10 


CO    CO    CO    CO    •*    ^ 

c^cSc^^S^ 


t^    t^.    t^    l>    l>    C5 

t>.  ^1  ^  ^ 


OOOOO(NCOCOOO 


OH  PH  PH  PH  PH  PH  PU 


104  Modern  Foreign  Exchange 

(Smaller  coins  contain,  as  a  rule,  less  quantity  of  fine  silver 
per  unit.) 

As  a  matter  of  information  in  the  following  Table,  are 
described  the  Subsidiary  Silver  coins  of  countries  other 
than  Silver  Standard,  mentioning  the  price  of  silver  at 
which  they  would  be  worth  intrinsically  the  same  as  their 
representative  value. 


6    I 

H     ^ 

i  1 

3  s 


2  g 


Subsidiary  Silver  and  Gold 

}<t>»O>CP'3'l'«£COCQTt<C 
b»OCO13<CiOOQl>-'3<'VH 

poscot>-y?cpooiN-'-in 
•5QcocO'*'*cocoT*« 


II! 


105 

S 


3    8    S    S    3    S    5 

CO  C^   CO  ^<   O   <N   CO 
»H   t>.   i-H   CO   »H   t>   »H 


H  I  i  I  2  S 

t>.  OS   lO  T*<   C^   CO 


Is*  Oi  t^*  CO  ^^  O^  l**»   C^   O^  *O  ^H   T-M   l>»  O5  tN* 


t^ot^^coot^t^ 

TH25r-lt>.C^>O»-llO 


.    °3    «^ 
li    S  .* 


,2  ^3    o3 


IIII11J31 


106 


I  «  9 


Modern  Foreign  Exchange 

§T£t>.cO<NT*<l>-l>-COC^<MTt<] 
OOCOrt<O5O5iOcOT^OO5O3 
rHcocoi>.CQoodicoi>coc<ioo 


"*     1C    CO     TjH 


i 


III*     Illiloll 


rH  rH  O 


BBS 

R    ^    O 


3  is 


IO  00  l> 

OO  CO 


Oi  CO  rH  00  CO 
r- 1  l>  Q  CO  CO 


CO   O   !>•   iO   O   l> 

(N    »O    rH    O    CO    rH 


rH^OCOrHTtlt^.OOOO 


Jt>.  10 

10 


^Iliil 

^^  2  2^  S 


53oQf£f£oQ 


&2 


oo 


II  f 


i  di  mill 


Subsidiary  Silver  and  Gold 


0     S     Q 

§  S3 

§ 


H    W  ^ 


!  h 

M     <V     K 


co  t^  «O 


^H  O  i-H  O  O 


S*55 

^?i^ 


iO 


o  t^  o 

iO  >O  t^ 

t^-  CO  *O 

i— I  O5  O 


<  4  8  o  C  b  *d     i^^ 

-Segg-^^^0.>.>: 

1 .8  i  2  J  9  9  I  ^  'a 


S|      •! 


IJ 


I 

tl 

si 


107 


108 


Modern  Foreign  Exchange 


ills 


91  a 


r*    •"-*      C 

!rl   *ri  •* 


»O   CO 
<N   CO 


CO 


IS 


EXCHANGE,  A  DECISIVE  FACTOR  IN 
TRADE 

The  question  of  exchange  with  foreign  countries  is 
entirely  different  from  the  point  of  view  of  bankers  and 
that  of  merchants. 

No  matter  how  interested  bankers  may  be  in  the  welfare 
of  the  country,  rates  of  exchange  do  not  affect  them. 
They  "trade"  in  exchange  and  they  derive  their  profits 
from  the  purchase  and  sale  of  exchange.  Those  profits 
constitute  the  power  that  keeps  the  wheels  of  foreign 
trade  moving.  If  banks  made  no  profits  in  exchange 
they  would  not  buy  foreign  bills  and  trade  would  stop, 
as  no  one  could  afford  to  ship  goods  and  wait  for  remittance 
at  maturity. 

But  the  rate  hi  fact  is  immaterial  to  them  as  they  will 
always  make  a  legitimate  profit  in  buying  bills  at  no  matter 
what  price  and  selling  them  at  an  advantage.  Their 
interest  in  returning  to  normality  is  indirect. 

The  position  of  merchants  is  different  because  the  rate 
of  exchange  affects  their  prices  and  the  possibility  of  com- 
peting with  other  foreign  articles  similar  to  them  hi  or 
from  other  countries.  Anyone,  however  little  knowledge 
he  may  have  of  the  subject,  understands  perfectly  well 
that  if  the  British  pound  Sterling  drops  to  $3.50  against 
a  former  par  value  of  $4»86656t  British  goods  will  be 

109 


110  Modern  Foreign  Exchange 

cheaper,  in  Great  Britain,  in  the  United  States  and  in  all 
foreign  countries. 

An  example  will  illustrate  the  matter.  Goods  worth 
formerly  £1,000  cost  in  the  United  States  $4,866.56— and 
against  this  cost  American  Manufacturers  could  compete 
by  selling  for  $4,800.  Now  those  same  goods  costing  the 
same  £1,000  could  be  paid  for  with  $3,500  (if  exchange 
dropped  to  $3.50  per  pound),  and  against  this  figure  Amer- 
ican Manufacturers  could  not  compete  if  they  could  only 
sell  for  $4,800.  In  the  case  of  American  goods  exported 
to  Great  Britain  the  case  is  the  same.  Formerly  American 
Manufacturers  could  ask  $4,800.00,  in  any  British  port 
competing  with  British  Manufacturers  who  asked  £1,000, 
the  exact  equivalent  of  which  was  $4,866.56.  At  present 
the  same  American  Manufacturers  asking  the  same 
$4,866.56  would  find  that  they  were  no  more  £1,000  but 
(at  the  rate  of  $4  per  £1)  £1,390.8.11  or  more  than  39% 
higher  and  that  they  could  not  compete  with  British 
Manufacturers  who  asked  only  £1,000. 

In  the  case  of  another  foreign  country  competition 
would  be  handicapped  just  the  same.  Before  the  War  it 
cost  hi  Argentine  money  exactly  the  same  to  pay  for 
£1,000  or  $4,866.56.  At  present  while  the  equivalent 
of  $4,866.56  would  be  the  same  in  Argentine  money, 
$11,464.45  Argentine  paper,  the  equivalent  of  £1,000 
would  only  be  $8,225.00.  It  is  out  of  the  question  that  no 
Argentine  merchant  would  prefer  to  buy  where  he  would 
have  to  pay  more  in  his  money. 

Of  course  prices  have  advanced  in  Great  Britain,  but 


Conclusion  111 

they  have  not  remained  stationary  in  the  United  States 
nor  have  they  decreased. 

Competition  with  France  is  worse  because  the  franc  is 
more  depreciated  at  present  than  the  pound  sterling.  With 
Italy  worse  still,  and  worse  with  Germany  whose  money 
is  quoted  to-day  at  less  than  l/10th  of  its  former  value. 

It  is  true  that  those  countries  will  have  to  pay  more  for 
raw  material  purchased  hi  countries  whose  money  is 
at  a  premium  compared  with  British,  French,  Italian,  and 
German  money.  But  the  proportion  of  raw  material  in 
manufactured  goods  is  sometimes  the  smallest  factor. 
Furthermore  not  always  does  the  producing  country 
obtain  its  price.  Many  times  it  has  to  take  what  it  can  get 
and  suffer  the  loss  of  being  paid  in  depreciated  money. 
It  depends  on  how  powerful  the  purchasing  country  may 
be  and  as  a  rule  producers  are  always  more  in  haste  to  sell 
than  consumers  (manufacturers  especially)  to  buy. 

Manufacturers  and  exporters  at  this  time  can  not  fail 
to  become  intensely  interested  in  the  matter  of  exchanges. 
Before  the  war  it  did  not  change  as  much,  and  it  was  not 
such  a  decisive  factor  in  their  trade  as  it  is  at  present. 

The  safest  way,  of  course,  would  be  to  sell  hi  dollars, 
but  they  may  be  underbidden  elsewhere  at  any  time, 
solely  because  of  exchange.  They  have  to  submit  to 
what  they  can  not  prevent,  following  the  market  of  ex- 
change day  by  day  to  know  at  least  what  may  be  coming. 
But  they  are  one  of  the  greatest  factors  or  exchange  as 
they  are  the  producers  and  should  co-operate  hi  some  way 
with  other  factors  in  trying  to  re-establish  normality. 


112  Modern  Foreign  Exchange 

Exchanges  may  be  stabilized  in  a  way  by  selling  and 
buying  bills  for  future  delivery  and  patching  up  condi- 
tions for  a  few  months  ahead  until  the  World  devises 
some  means  of  regulating  rates  in  spite  of  the  terrific  dis- 
turbance prevailing.  A  temporary  remedy  again  of  in- 
definite duration,  but  a  palliative  at  least. 


THIS  BOOK  IS  DUE  ON  THE  LAST  DATE 
STAMPED  BELOW 


AN  INITIAL  FINE  OF  25  CENTS 

WILL  BE  ASSESSED  FOR  FAILURE  TO  RETURN 
THIS  BOOK  ON  THE  DATE  DUE.  THE  PENALTY 
WILL  INCREASE  TO  SO  CENTS  ON  THE  FOURTH 
DAY  AND  TO  $1.OO  ON  THE  SEVENTH  DAY 
OVERDUE. 


1934 


•^ 


LD  21-100m-7,' 


Y.C  V837V 


UNIVERSITY  OF  CALIFORNIA  LIBRARY 


